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.
Reasons for making changes to Class 2 NICs
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.
What are Class 2 NICs?
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.
Abolition of Class 2 NICs
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