Chancellor Philip Hammond has defended his decision to raise taxes for the self-employed citing demands of Brexit as an unforeseen game-changer.
The Government has come under fire for breaking their 2015 campaign pledge which promised there would be no rise in income tax, National Insurance (NI) or VAT in the current parliament. In his latest budget, Mr Hammond announced plans to raise NI contributions from 9% to 10% in April 2018, and to 11% by April 2019. However, the Chancellor argues that the historic decision to leave the European Union has changed the country’s circumstances.
“[The manifesto pledge] was a broad commitment to lock taxes,” Mr Hammond told Radio 4. “As the chancellor now, I am working within an extremely constrained environment where we face some new challenges in this country. We are navigating within those confines to try to prepare Britain for Brexit.”
The raise to 11% by 2018 brings self-employed NI contributions closer to those made by employed workers who currently pay 12%. With the country poised to leave the EU and the European single market, the Government needs to tread carefully to stabilise the UK’s economic position. In 2015, former Prime Minister David Cameron made a manifesto pledge that there would be no rise on the three main taxes for the 2015-2020 parliament. Following the 2017 Budget announcement, Paul Johnson, the director of the Institute of Fiscal Studies (IFS), argued Mr Cameron’s original pledge was a mistake.
“As we said at the time these were silly pledges,” says Mr Johnson. “To commit yourself to not raising the three main taxes – income tax, NI and VAT – ties your hands to an absurd extent. No party should repeat these sorts of promises.”
The rise in NI contributions will affect those self-employed people earning between £8,060 and £43,000, and will be an average of 60p per week. As of the 6th April 2016 you must have 35 qualifying years to receive the full basic state pension and this applies to men and women.
“The issue of National Insurance contributions always comes up when we begin the tax-planning process for our clients,” explains Antony Moyes, chief investment officer at Moyes Investments. “One of the first things we do is look at the anticipated State Pension forecast to identify the number of ‘qualifying years’ our client has attained so far. It gives us the opportunity to get the rest of the tax planning right. We do this work because our goal for each client is to help them make financial plans, but also to help them achieve their aspirations. A proactive and robust plan can only be achieved when you’ve got all these crucial foundations in place.”
If you would like to check how many years of NI contributions you have accrued, or if you’d like to discuss how the 2017 budget affects your finances please call 01638 429975 or email [email protected].