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Class 2 National Insurance Contributions cull delayed

Written by: Paloma Kubiak
As the UK was focused on the interest rate decision yesterday, the government quietly announced the abolition of Class 2 National Insurance Contributions would be delayed until 2019.

There are usually two types of National Insurance Contributions (NICs) for the self-employed.

Currently Class 2 NICs of £2.85 per week are payable for those whose profits are £6,025 or more a year, while Class 4 payments are paid by those whose profits are £8,164 or more a year (9% on profits up to £45,000 followed by an extra 2% on profits over £45,000).

The Chancellor of the Exchequer first announced in the Spring Budget 2017 that Class 2 NIC payments would be abolished in April 2018 while Class 4 payments would rise from 9% to 10%.

Yesterday, as the UK’s attention was on the Bank of England’s rate rise decision, the Treasury confirmed Class 2 payments would remain until 2019.

For some this will provide welcome relief, while for others, it means they will pay more.

Kate Smith, head of pensions at Aegon, said: “This will be welcome news for some of the UK’s lowest earners, those self-employed with profits below £5,965, who don’t receive NI credits for being a carer or having children under the age of 12.

“They will continue to have the option to pay the cheaper Class 2 NICs for another year, instead of having to pay Class 3 contributions, which are more than four times the cost. This is unaffordable for many. The self-employed don’t benefit from auto-enrolment and this group may have little private pension saving, so will rely on the State pension.

“The one year delay gives a window of opportunity for some of the UK’s lowest earners to continue to build up valuable State pension. Unfortunately it will be less well received by the self-employed with annual profits between £6,025 and £8,164 (2017/18) who were looking forward to not having to pay any NICs and receiving NI credits to build up their entitlement to the State pension.”

Nathan Long, senior pension analyst at Hargreaves Lansdown, added: “The self-employed are a very diverse group of individuals, some will choose to be entrepreneurs, while others will be self-employed simply because other employment is just not available to them.

“Even if the Chancellor’s bungled attempt to raise National Insurance Contributions was not clear enough, Matthew Taylor’s report into modern working patterns highlighted how complex the relationship between taxation and benefits are for the self-employed.

“A delay makes perfect sense, far better to ensure the policy works for all facets of this group than bring in reform and subsequently tinker. We just wish that the government had not hid behind the commotion created by yesterday’s interest rate rise.”

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