This year’s spring budget had relatively few provisions, but the announcement that Class 4 national insurance, paid by self-employed people, will increase has provoked a storm of headlines as well as more nuanced comment.
The argument provided by the Chancellor is that the benefits secured by the different forms of national insurance (Class 1 for employees and directors, and Class 4 for the self-employed) are more closely aligned than had been the case previously. It is certainly true that until 2016 the self-employed accrued much more modest state pension rights, but even now parental and maternity benefits are less generous.
The increase in Class 4 contribution rates will commence in April 2018, just as the tax free dividend allowance decreases from £5,000 to £2,000. This latter change will probably affect those who have owner managed businesses more than any other group, as a significant proportion of profits earned from such businesses are extracted by way of dividend.
In the last few years we have spent a lot of time considering whether or not self-employed clients should incorporate their businesses. In light of the budget proposals, it will be worth reviewing the fiscal models to consider how the proposed changes impact on particular clients.
If such a review is something that we could do for you, please contact us.