The headlines after the Budget were captured by the 2% rise in the main rate of class 4 NIC. This caused such a fuss as it appeared to break a Conservative Party manifesto pledge not to raise the rate of income tax, national insurance or VAT in this Parliament, i.e. before May 2020.
On 15 March Chancellor Hammond announced a U-turn on this NIC policy: there won’t be an increase in class 4 NIC from 2018 or 2019. However, class 2 NIC will be abolished from 6 April 2018, which will save self-employed individuals £148.20 per year, at the 2017/18 rates. Additional tax raising measures, to plug the £500m revenue gap left by that U-turn, will be announced during the second 2017 Budget this Autumn.
The cut in the dividend allowance from £5,000 to £2,000 on 6 April 2018 will impact owners of small companies, who extract funds from their company as dividends. Where those shareholders currently take dividends of £5,000 or more the cut in the dividend allowance will cost them £225 per year (at basic rate), £975 per year (at higher rate) or £1,143 per year (at additional rate).
Written by the Tax Advice Network