Theresa May has delayed the National Insurance change until autumn, adding that Chancellor Philip Hammond will listen to concerns over the tax grab.
May was forced to defend the Budget announcement after it sparked a backlash from Conservative MPs such as Iain Duncan Smith, John Redwood, Anna Soubry and Dominic Raab.
The change will see millions of self-employed workers pay £240 a year more, raising £2bn in the next two years as it stands.
However the Conservative manifesto had promised not to raise National Insurance rates.
May said: “People will be able to look at the government paper when we produce it, showing all our changes and take a judgment in the round.
“Of course the Chancellor will be speaking – as will his ministers – to MPs, business people and others to listen to the concerns.
“But this is a change that leaves lower-paid self-employed workers better off, it’s accompanied by more rights and protections for self-employed workers and it reforms the system of National Insurance to make it simpler, to make it fairer and to make it more progressive.”
She explained the decision was made due to a rapid rise in self-employed workers, eroding the tax base and making it harder to pay for public services
Shadow chancellor John McDonnell said May’s announcement signalled a “partial U-turn” on the tax increases.
He said: “The fact the prime minister won’t fully support her own Chancellor’s Budget measure, and has been forced by Labour to row back on it just 24 hours after he delivered his speech in Parliament, shows the level of disarray that exists at the top of government.”
“Theresa May should show some leadership, rather than this partial U-turn, and just scrap these tax rises for low and middle earners altogether.”
The Institute of Fiscal Studies has backed the tax hike.
Its director Paul Johnson said the current system “distorts decisions, creates complexity and is unfair.”
He added: “A tax system which charges thousands of pounds more in tax for employees doing the same job as someone else needs reform.”