Budget 2016: Class 2 national insurance contributions to be scrapped for self-employed workers
Self-employed workers will save £350 million a year in national insurance contributions from 2018, the Chancellor announced in his budget statement.
Under the current rules, self-employed workers have to pay £2.80 per week in Class 2 National Insurance contributions if they earn more than £5,965 profit a year, but these will be scrapped from April 2018.
The changes do not affect class 4 national insurance contibutions, which are paid by self employed workers who make more than £8,060 a year. These are charged at 9% on profits between £8,060 and £42,385, and 2% on any profits above £42,385.
“To help the self-employed I’m going to fulfil the manifesto commitment we made, and from 2018 abolish Class 2 National Insurance Contributions altogether,” said Chancellor George Osborne.
“That’s a simpler tax system and a tax cut of over £130 for each of Britain’s 3 million strong army of the self-employed.”
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.