U-turn - Class 2 NICs will remain for the self employed
Back in July we reported that Class 2 National Insurance Contributions (NIC) would be scrapped for self employed people from 6 April 2019. However, the Government have now decided not to abolish the contributions due to the negative effects it would have on low earners.

What are Class 2 NICs and how do they affect me?

As a self-employed person, if your profits are below the small earnings threshold of £6,205 (for 2018/19), you don’t have to pay any NIC. But you can voluntarily pay Class 2 NIC of £153.40 (for 2018/19) to ensure the year counts towards your state retirement pension and other state benefits.

Paying NIC voluntarily is a good idea if you don’t currently have 35 years of contributions, which are needed to receive the full state pension. You can check how many years you have accumulated by accessing your personal tax account on: www.gov.uk/ personal-tax-account.

Why were they going to be scrapped?

The idea was to simplify the tax system for the self-employed, so that you would only have to pay one class of NIC.

What would it have meant for the self employed?

Put simply, it would have affected those on low profits because the voluntary payment would have gone up substantially. You can pay Class 3 NIC voluntarily, but that costs £761.80 for the year. So paying Class 2 NIC rather than Class 3 NIC saves you £608.40 for 2018/19. Similar savings may be made for up to six earlier tax years, where you have gaps in your contribution record but you did make a small amount of self- employed profits in the year.

So, after listening to those who would most likely be affected by scrapping the Class 2, the decision has been made to leave things as they are for now. Meanwhile the Government will still be focusing on simplifying the tax system for the self-employed.

If you need any help or advice paying your National Insurance Contributions, contact us.

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