NIC Class 2 abolishments

Self-employed: pay 400% more NICs or lose State pension

Philip Hammond had to ditch his grand plan to increase class 4 NICs for the self-employed just a week after he announced it in the budget. It’s a spectacular U-turn, but it doesn’t mean the self-employed have got off scot-free. The government is pressing ahead with the previously announced abolition of class 2 NICs for the self-employed from April 2018. As things stand, this means many of Britain’s lowest earning self-employed workers will either have to pay an extra £588 a year or lose their entitlement to a state pension.

Class 2 NI is payable at the rate of 2.80 per week for the self-employed who earned more than £5965 in 2016-2017. However though, those who earn less than that can choose to pay class 2 NI contributions in order to gain entitlement to a state pension.

Bradly Townsend, a self-employed science tutor who earns around £2,500 a year, faces a 400% increase in his National Insurance Contributions (NICs) if he wants to retain his right to a state pension. He voluntarily pays £145.60 a year (52 x £2.80). But from April 2018 he won’t be able to do that. He will have to either pay class 3 voluntary contributions, at a cost of £733.20 a year at current rates, or give up on a state pension. This new change will equate to an extra £588 a year, which is a good chunk of Townsend’s earnings, – and he is far from alone. Potentially, several hundred thousand self-employed people who earn below £6,000 will be affected, unless the government brings in measures between now and April next year to reduce the impact.

It is important to make clear that not all of the people who earn under this £6000 will be adversely affected. As those who are eligible for national insurance credits, would continue to build up qualifying years for the state pension. This typically includes people who are parents of children under 12, foster career’s and those receiving carer’s allowance.

If you have any questions regarding these changes, contact us for further advice.


Info Provided by: the guardian

Picture Provided by: Pixabay

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