National Insurance Contributions (NI)
No changes to the rates of income based NI contributions on employment were announced in the Budget.
Class 4 NI (paid as a percentage of profits for the self employed) will increase from 9% to 10% from April 2018 and then 11% from April 2019.
The Chancellor’s justification for this increase is that the benefits of paying national insurance for the self employed are becoming more closely aligned with the benefits for employees, in terms of pensions.
The main difference in benefits between employed (class 1) and self employed (class 4) national insurance now relates to ‘parental benefits’ – ie maternity, paternity and adoption pay, and the Chancellor announced a consultation on whether there is a case for greater parity on these between the employed and self employed.
He also confirmed that Class 2 NI (paid at a weekly flat rate by the self employed) will be abolished from 6 April 2018. It will be £2.85 per week for 2017-8 and will be collected via self assessment tax returns.
The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) will increase to £157 and will remain aligned going forwards.
The upper earnings (or profits for the self employed) limit is £45,000 (£866 per week), aligned with the point at which 40% tax becomes payable.
Details of the rates of NI can be found here.
Employer’s Employment Allowance
The employment allowance will remain at £3,000 per annum for 2017-8.
The National Minimum Wage historically increased on 1 October every year. This will be brought into line with the Living Wage, so both rates are amended in April from 2017.
The Minimum Wage rates from 1 April 2017 will be:
- 25+ (National Living Wage) – increases from £7.20 to £7.50 per hour
- 21 to 24 year olds increases from £6.95 to £7.02 per hour
- 18 to 20 year olds increases from £5.55 to £5.60 per hour
- 16 to 17 year olds increases from £4.00 to £4.05 per hour
- apprentices increases from £3.40 to £3.50 per hour
Changes to Benefits in Kind
The small earnings threshold of £8,500 that existed for benefits in kind was abolished for employees from 6 April 2016. This means that benefits in kind must be reported on P11Ds due for 2016-7, and tax and employer’s national insurance paid, for all benefits provided to employees, not just those earning over £8,500 per annum.
Note: The exemption never applied for directors, so those paying themselves the lower NI limit, which is less than £8,500, already have to report and pay tax on any benefits