Update: This rise in Class 4 NIC rate policy has now been dropped as of March 15th due to pressure that the Conservative Party was reneging on party policy of not raising any taxes. The rise in Class 4 NIC's would net the Treasury an additional £645 million - a sum now leaving a hole in the finance plans set out in last week's budget. We shall see in the Autumn what measures will be brought in to plug the gap. The reduction of the dividend allowance to £2,000 however is set to continue.
In yesterday's Budget, Chancellor Philip Hammond took an unexpected swipe at the self employed and gig economy. He raised two key aspects that any self employment person will be interested in a) taxes on self employment income and b) tax on dividends.
Dividend taxation was only recently overhauled with a change to the rates across the bands, removal of the tax credit and introduction of a separate dividend tax allowance of £5,000. The Budget yesterday took away more than half of the allowance reducing it to £2,000 starting April 2018.
Self employed people were looking forward to the removal of the Class 2 NIC (National Insurance Contribution) of a fixed £2.85 per week. This is paid by anyone currently with self employment profits over £6,025. So a total of £148 per year. Class 2 NIC's would be removed as of April 2018. The Chancellor yesterday replaced them with an additional one percent on the main rate of Class 4 NIC's - these are paid by the self employed only. An additional one percent will be added in 2019, so in 2018 the main rate is 10 percent and in 2019 it is 11 percent. These are up from the current 9 percent.
It is hard to estimate the exact influence these changes will have as we are yet to see what the personal allowance and other thresholds will be in 2018 and 2019, but with what figures we do have an estimate can be produced. Please use the below calculator to input the various sources of income you have, the tax region you are in and hit calculate. A comparison of taxes between 2017, 2018 and 2019 will be produced to show an overview of the changes in money terms.