Proposed abolition of Class 2 NICs
In 2016 the government consulted on a proposed abolition of Class 2 National Insurance contributions (NICs) for the self-employed. This flat rate contribution (currently £2.95 a week) is payable by the self-employed in addition to Class 4 contributions based on the level of profits. The flat rate contributions were due to cease on 5 April 2019 but will now continue ‘for the life of this parliament’.
The reason for the u-turn concerns business owners with low profits or making losses. In order to maintain their NI Contribution record, many self-employed individuals voluntarily continue to pay Class 2 contributions despite their profits being below the £6,205 small earnings exemption. Having a full NI contribution history helps maximise an individual’s entitlement to State Benefits. For example, full State Pension entitlement requires 35 years contributions.
With the abolition of Class 2 NICs, those with low profits or making losses would need to make voluntary Class 3 contributions (currently £14.65 a week or £761.80 a year) in order for that year to count as a contribution year.
In a written statement to MPs, Robert Jenrick, Exchequer Secretary to the Treasury, stated that:
‘This change was originally intended to simplify the tax system for the self-employed. We delayed the implementation of this policy in November to consider concerns relating to the impact on self-employed individuals with low profits. We have since engaged with interested parties to explore the issue and further options for addressing any unintended consequences.’
‘A significant number of self-employed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the State Pension rise substantially. Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.’
Check your contribution history
In order to maximise entitlement to full State Benefits, a full contribution record is required. It is possible to check your National Insurance record online to see:
- What you’ve paid, up to the start of the current tax year (6 April 2018)
- Any National Insurance credits you’ve received
- If gaps in contributions or credits mean some years don’t count towards your State Pension (they aren’t ‘qualifying years’)
- If you can pay voluntary contributions to fill any gaps and how much this will cost
For more information on NIC contributions and support for self-employed individuals, please get in contact with Glenn Fisher, head of our Contractors team, on 01903 234094.