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Spring 2017 Budget: Tax Increase for the Self-Employed

The Chancellor Philip Hammond delivered his Spring Budget on 8 March 2017 which included tax increases for self-employed workers.

The Chancellor said that the reforms come after 'dramatic increase' in number of people registering as self-employed to cut tax bill. An employed person earning £32,000 would rack up National Insurance contributions, between them and their employer, of £6,170, while a self-employed person earning the same amount would pay £2,300.

People who are self-employed pay two types of National Insurance, a tax that funds benefits like the state pension and job seeker's allowance. For the 2017-18 tax year they pay Class 2 NI at £2.85 a week on profits between £6,025 and £8,164. If profits are above £8,164, these are subject to Class 4 NI at 9pc. Profits above £45,000 are taxed at 2pc.

This is in contrast to employed workers who pay Class 1 NI at 12pc on earnings between £8,164 and £45,000. As with the self-employed, they pay 2pc on earnings above £45,000.

But the Chancellor said the current system "undermines the fairness of the tax system".

To combat this, from April 2018 Class 2 NI will be abolished as planned, and Class 4 NI will rise from 9pc to 10pc. In April 2019 rates will rise again, to 11pc.

The move will cost 60p a week to the average self-employed person and save the Government £145m by 2021/22, the Chancellor Philip Hammond said.

The Treasury have said that 1.6 million people would, on average, pay £240 more a year and no-one earning less than £16,250 would be worse off.

Other announcements include:

  • The tax-free dividend allowance is to be cut from £5,000 to £2,000.
  • Reforms to IR35 in the public sector will go ahead as of 6 April 2017.
  • The national living wage will increase to £7.50 on 1 April 2017, the personal allowance will rise to £11,500 and the higher rate threshold to £45,000.
  • The Tax-Free Childcare policy, which will provide up to £2,000 towards childcare for each child under 12, will be rolled out to all eligible parents by the end of the year. From September, working parents with three and four year olds will have their free childcare entitlement increased to 30 hours a week.
  • The government announced £5 million to promote "returnships" to the public and private sector, helping people back to employment after a "career break" but provided no further detail

This bulletin is for general guidance purposes only and should not be used for any other purpose.

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