Spring Budget 2017—Income tax and NICs

This analysis is part of the Lexis®PSL Tax team’s summary of the Spring Budget 2017.  Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here.

Class 4 NICs

The government will legislate to increase the main rate of Class 4 NICs from April 2018. Currently, the self-employed pay Class 4 NICs at 9% on profits between £8,060 and £43,000 (with a 2% rate applying to profits over £43,000). From 6 April 2018, the 9% main rate will increase to 10%, with a further increase to 11% from 6 April 2019.

This increase will address the exacerbated differential between the rates of NICs paid by employees and those paid by the self-employed when Class 2 NICs are abolished from April 2018 (as announced at Budget 2016), and also reflects the post-April 2016 pension entitlement changes.

See: Spring Budget 2017 (para 3.5), OOTLAR (para 2.7) and National Insurance and the self-employed: fact sheet.

Dividend allowance reduction

The government announced that it will reduce the dividend allowance from £5,000 to £2,000. This measure, which will apply from April 2018, is part of the Chancellor's drive to reduce the difference between those working through a company and those who are employed or self-employed. Taken together with increases to the ISA and personal allowances, the government believes that 80% of general investors will continue to pay no dividend tax. The legislation will be included in FB 2017.

See: Spring Budget 2017 (para 3.6), OOTLAR (para 1.2) and TIIN: Income Tax: dividend allowance reduction.

Personal allowance and