National Insurance Changes Winners & Losers
24th May 2017
Business | Tax
Tax campaigners have warned that the abolition of Class 2 National Insurance contributions from April 2018 could result in the lowest earners among the self-employed being hardest hit.
Class 2 NICs are flat-rate weekly contributions paid by the self-employed to gain access to contributory benefits. The self-employed also pay Class 4 NICs on profits above the Lower Profits Limit. Class 4 NICs do not currently give access to contributory benefits. At Autumn Statement 2016 the Chancellor confirmed that Class 2 contributions would be abolished from 6 April 2018.
At present, self-employed earners whose profits exceed £5,965 a year (SPT), are required to pay Class 2 NI contributions at £2.85 a week. These contributions then count towards their state retirement pension and entitlement to certain other contributory benefits. If their profits fall below this level they have the option to make voluntary Class 2 payments.
When Class 2 is abolished, payment of Class 4 NI contributions will count towards state benefits. In order to protect some people on low incomes, Class 4 contributions will not be payable until annual profits reach £8,060. However, as long as profits exceed the SPT, the self-employed will be given Class 4 credits, so they will be treated as making contributions even though none was actually paid.