Reversal of Plan to Scrap Class 2 NICs – What It Means for the Self Employed

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The Government’s plan to abolish Class 2 NICs by April 2019 has been shelved, with no chance of the abolishment of Class 2 NICs taking place during this parliament.

The planned move, which could have benefited self-employed workers earning more than £6,205 per annum, was dropped under the premise that lower earning self-employed workers would have seen their voluntary payments increase significantly.

Find out more about the change, the current rates of National Insurance for the self-employed and how you can ensure you’re paying the correct National Insurance Contributions (NICs).

Why Has The Planned Change Been Shelved?

The plan was first announced in the 2015 Summer Budget and was to come into force in April 2018 – this was then delayed to April 2019. The original aim of the change was to make the tax system more straightforward.

Now, in a written statement, Robert Jenrick, the treasury minister said that the abolishment of Class 2 NICs will not happen during this parliament; citing negative impacts on self-employed workers with lower profits, who would have seen the voluntary payments they make to fund state benefits increase “significantly”.

He also added that the options identified would have introduced greater complexity to the tax system, contradicting the original aim of the change.

Who Pays Class 2 NICs?

Class 2 NICs are only paid by the self-employed earning more than £6,205 per year. If a self-employed person is earning less than £6,205 per year, they may choose to pay voluntary contributions in order to ensure they get their full State Pension entitlement as well as other state benefits.

What Would The Change Have Meant for the Self-Employed?

Should the changes have gone through, all those who pay Class 2 NICs would no longer have been required to, this would be considered a benefit for those that pay both Class 2 and Class 4 NICs.

However, those that only pay Class 2 NICs would likely have been required to pay more voluntary contributions in order to retain their entitlement to state benefits.

Current National Insurance Rates for the Self-Employed

The current rates of NICs for the Self-Employed are as follows, note that self-employed workers who meet the higher earning bracket will pay both Class 2 and Class 4 NICs:

Class

The rate for 2018 to 2019 tax year

 

Class 2 (Profits of £6,205+ per year) £2.95 per week

 

Class 4 (Profits of £8,424+ per year) 9% on profits between £8,424 and £46,350

2% on profits over £46,350 (2% paid on the excess profits and not the full amount)

 

 

As well as entitling you to state benefits such as a pension, your NICs go towards important services including the National Health Service. For more detailed information on NICs for the self-employed and what they are used for, read our National Insurance for the self-employed explained blog.

How to Ensure You Pay the Correct Amount of National Insurance

The majority of self-employed workers calculate and pay their NICs through a Self-Assessment tax return, this is the responsibility of the worker and should be submitted accurately and on time every tax year.

Failure to submit your Self-Assessment on time or submitting inaccurate information can result in penalties from HMRC. Here are some important upcoming dates for 2018/2019 self-assessment tax return submissions:

  • 5th October 2018 – Register for Self-Assesment if you’re self-employed or a sole trader – you can do this
  • 31st October 2018 – Deadline for paper Self-Assessment returns for the 2018/2019 tax year.
  • 31st January 2019 – Deadline for online Self-Assessment tax returns for 2017/2018 tax year. This is also the deadline for paying the tax you owe.

Accountants for the Self-Employed in Bristol

If you’re unsure about how much National Insurance you should be paying, or are struggling with your Self-Assessment tax return – we can help.

We have years of experience working with the self-employed and can help ensure your tax return is filed accurately and on time, meaning you spend less time worrying about potential penalties and have more time to focus on your business.

For more information, or to arrange a free initial consultation with us – give one of our expert team a call today on 0117 379 0810.

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Steph

Steph is a Chartered Accountant with many years’ experience working in audit compliance and general accountancy. She is a Fellow of the ICAEW and has extensive knowledge of accountancy and tax for the self employed.
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