NI contributions alignment

Whilst widely predicted, the self-employed and partners of partnerships and LLP were hit again with an increase in the level of National Insurance Contributions (NIC). This follows consecutive legislative changes over three or four years attacking corporate members, salaried partners, and service company structures and the current consultation on partnership administration.

What all businesses need is stability but this sector has suffered from too many successive changes.

Currently self-employed individuals pay 9 per cent on profits earned between £8,060 and £43,000, whereas employees pay at a higher rate of 12 per cent on the same level of income. From April 2018 the rate for Class 4 NIC in this income range will increase to 10 per cent, followed by a further increase to 11 per cent in April 2019.

This measure is set to increase revenue received by the exchequer by £145m in 2021/22. However, only last year the abolition of Class 2 NIC was announced, currently at a rate of £2.80 per week. So an individual who pays a full amount Class 4 NIC will see a weekly rise of approximately £4 a week (based on 2016/17 rates), and all those with profits of more than £16,250 will pay more as a result of the changes overall.

Whilst we welcomed the abolition of Class 2 NICs because of its regressive nature, only time will tell as to whether this Class 4 NIC increase will stifle the spirit of the entrepreneur. In the early days of setting out in business every penny does count, and given the significant and broad ranging risks those setting out in business already face, if this increase is the start of an upward trend it could have an impact of deciding whether to go it alone or with the protection of an employer.

We are pleased that the Chancellor did not increase the super contribution level for those top earners (currently 2 per cent),  but this together with the current Class 4 exemption for non-resident partners and Class 4 relief on brought forward losses may be a future be target for.

If alignment of the corporate and unincorporated business world is the goal for the current government, we would urge the Exchequer to consider levelling the playing field by allowing partnerships and LLPs access to the valuable research and development (R&D) reliefs, which are currently only available to limited companies.

For further information please contact Mark Waddilove or your usual RSM advisor.