In 2016, it was announced that Class 2 NICs (National Insurance Contributions) would be abolished from April 2018. This was again mentioned in the Spring Budget 2017. Class 2 NICs are paid by individuals that are self-employed.
In this blog, we will explain why the Class 2 NIC payments were made and what the changes will mean going forward.
The Government have given four main reasons for making this policy change:
• To simplify the process for self-employed NICs payers, making self-employed NICs more transparent and easier to understand.
• To make sure self-employed individuals still have access to contributory benefits.
• So, the contributory benefits can be accessed on an equal basis to make the system fairer for all.
• To make the administration of self-employed NICs easier to manage.
Class 2 NIC contributions are paid so that you can qualify for state pension and other contributory benefits in the future. To obtain state pension you need to pay Class 2 NICs for 35 years. The current rate for Class 2 NICs for 2017/18 is £2.85 per week. This payment is usually made once a year in January at the same time as your self-assessment tax return payments.
By abolishing the Class 2 NICs everyone will make savings of £150 per year. The last payment for Class 2 NIC will therefore be for the tax year 2017/18.
Going forward the government will legislate to increase the main rate of Class 4 NICs from 9% to 10% with effect from 6 April 2018 and from 10% to 11% with effect from 6 April 2019.
This means that self-employed individuals will still be able to build up qualifying years towards their state pension through their class 4 contributions, or they can use voluntary class 3 contributions and NI credits.
Your accountant should be telling you about these changes and how they will impact you if you are self-employed. If you need any more advice then please contact us we are always happy to help anyone, whether you are a client of ours or not. You can call 01623 490120 or email This email address is being protected from spambots. You need JavaScript enabled to view it..
Haidee is our Personal Tax Director and is a fully qualified tax adviser, having achieved the ATT qualification in 2006. Tax efficiency being her main concern. Specialising in taxation, Haidee provides clients with advice on personal tax, PAYE services, VAT and social security. She also provides guidance to new start-up businesses.
Call us today on01623 490120
or email info@watsonk.co.uk
When you first start a business, your focus is usually on attracting customers, generating sales and building a successful company. Few business owners spend much time thinking about how or when they will eventually leave the business.
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