National Insurance contributions for the self-employed – the big u-turn
The biggest hoo-ha has been over the proposal to increase National Insurance contributions for the self-employed. Although Chancellor Philip Hammond announced on budget day that he would be increasing the main rate of Class 4 National Insurance contributions to 10% now and to 11% in 2019 this provoked such a reaction that he had to backtrack – for now.
The measure had been intended to close the gap between the National Insurance contributions made by the employed and self-employed. But that was considered unfair given that it was a breach of a manifesto promise, and that there is a fundamental difference between the stability of employment and uncertainty of self-employment.
Whether he returns to this issue remains to be seen. More likely he will seek to raise fund through another route which will be announced in the Autumn budget. We can also expect to see more measures in coming budgets which affect the self-employed, including steps to mandate more pension provision, as the self-employed currently fall outside of the auto-enrolment rules.
Pensions tax relief – the next target?
With a big hole in his budget from his u-turn, commentators are suggesting that pension tax-relief could be the next target.
The annual contribution allowance of £40,000 could easily be reduced. For those saving into personal pensions, that’s an obstacle but tax charges can be avoided through good planning. That’s less easy for members of defined benefit pension schemes, where benefits accrue every year and there’s little choice but to pay the tax charge.
There’s also the possibility that the option to carry forward unused pension allowances may be scrapped, which is a valuable planning tool for many people, particularly after a windfall like an inheritance or selling a business.
And there’s the option of a flat rate of tax relief being introduced which will hit higher and additional rate taxpayers the most.
The message from this is that if you are thinking about boosting your pension fund, do it now while you still can.
Tax-free dividend allowance reduced
The dividend allowance of £5,000 will be reduced from £5,000 to £2,000 with effect from April 2018. This is a measure clearly aimed at small business owners who use dividends as part of their remuneration strategy. But it also impacts on those with investment funds or shares outside of ISAs or pensions that generate dividends of over £2,000 a year. That is going to include an awful lot of people.
Corporation tax cuts maintained
The chancellor confirmed his previous plans to reduce corporation tax from 20% to 19% from 2018/19 would go ahead.
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