The Low Incomes Tax Reform Group (LITRG) has welcomed today’s announcement by the Government that there will be a one year delay before the removal of Class 2 National Insurance contributions (NICs) in order to enable consultation on the impact of its abolition on the self-employed on low incomes.
When Class 2 NICs are abolished, those with profits below the small profits threshold (currently £6,025) will have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate similar to the present Class 2, perhaps by introducing a lower rate of Class 3.
LITRG Chair Anne Fairpo said:
“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.
“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.
“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”
The delay means the measures in the as yet unpublished NIC Bill now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.
1 The Government said today that it has decided to implement a one year delay to allow time to engage with interested parties and Parliamentarians with concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. The Government has reaffirmed its committed to abolishing Class 2 NICs to simplify the system, and said it is ‘therefore right’ to take the time to ensure that there are no unintended consequences for the lowest paid.
2 The Office for National Statistics revealed that in 2015-16 there were 967,000 people with an annual income from self-employment below the small profits threshold (now set at £6,025 for the 2017/18 tax year).
3 Class 2 NICs are £2.85 per week; Class 3 NICs are £14.25 per week for the 2017/18 tax year.