Self-employed and director-shareholders targeted in search for fairness
The national insurance rates for self-employed people will be increased next year as Chancellor Philip Hammond sought to redress unfairness to workers in employment.
The abolition of Class 2 NICs for self-employed people, announced by former Chancellor George Osborne in 2016 and due to take effect in 2018, will remain.
However, when the Class 2 NIC is abolished, the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.
The Chancellor said the change, which is expected to raise an additional £145m a year by 2021/22, would bring the self-employed more in line with those taxed by their employers and cost an average of around 60p a week per self-employed person in this country.
Hammond said: “The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5bn this year alone.
“That is not fair to the 85% of workers who are employees.”
He also targeted the “extremely generous tax break” for investors with substantial share portfolios, reducing the dividend allowance by 60%.
The allowance will be £2,000, over and above the personal allowance, for director shareholders.
Richard Davis, Deloitte real estate tax partner in Yorkshire, (pictured above) said: “As part of the proposals around creating equality between different types of working, the £5,000 dividend allowance has been reduced to £2,000 from April 2018.
“Many people have opted to work through a personal company taking remuneration as a mix of dividends and salary and this change will reduce the attractiveness of taking dividends from a company. According to the Budget statement about half of those affected will be those using personal companies in this way.
“On a more general level however, the allowance was introduced to take effect from April 2016 as part of an overall package of measures to reform dividend taxation. The effective tax rate was increased, although this was partially offset by the introduction of the dividend allowance. Those receiving higher levels of dividends paid more tax than they had previously.
“The reduction in the allowance will increase this differential. Under the 2016 changes basic rate taxpayers were affected if their dividend income exceeded £5000, higher rate £21,667 and additional rate £25,231. With the reduction to £2,000 the break-even points become £2,000, £8,667 and £10,092.”
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