The abolition of Class 2 NICs delayed by a year

8 January 2018

On 2 November 2017, the government announced a one-year delay to the abolition of Class 2 National Insurance contributions (NICs). Class 2 NICs will now be abolished from 6 April 2019 rather than 6 April 2018.

The delay will allow time for the government to engage with those interested parties and parliamentarians who have concerns about how the abolition of Class 2 NICs will impact on self-employed individuals with low profits.

The relevant legislation will be contained in the National Insurance contributions Bill, to be introduced in 2018. The measures it will implement will take effect one year later, from April 2019. These measures include the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments and changes to the NICs treatment of sporting testimonials.

Broadly, Class 2 NICs are being removed to simplify the system. Those with profits below the small profits threshold (£6,025) will need to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they wish to build up an entitlement to contributory benefits such as the state retirement pension. Based on 2017/18 rates, the proposed change would mean that people falling into this category would pay £592.80 a year more in Class 3 contributions.

According to the Office for National Statistics, in 2015/16 there were 967,000 self-employed people with an annual income below the small profits threshold.

The Low Incomes Tax Reform Group, whose aim is ‘to persuade politicians and HM Revenue & Customs to make the tax system easier and fairer for all’ said it was keen for a solution that allows the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate similar to the present Class 2, perhaps by introducing a lower rate Class 3.

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