You are here: Home - Retirement - Retirement planning - News -

Class 2 National Insurance Contributions cull delayed

0
Written by: Paloma Kubiak
03/11/2017
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.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

PayPal closing down Money Pools

The ability to create new Money Pools will be disabled from 30 September, while existing Money Pools will be s...
PayPal closing down Money Pools

NS&I increases interest rate on income bonds

National Savings and Investments (NS&I) has increased the interest rate on its Income Bonds by 14 basis po...
NS&I increases interest rate on income bonds

The pros and cons of using price comparison websites

Brits are becoming a nation increasingly reliant on comparison sites to find the best and cheapest insurance d...
The pros and cons of using price comparison websites

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week