Self-employed workers will continue to pay Class 2 national insurance contributions (NICs) either voluntarily or mandatorily until April 2019, it’s been announced.
Class 2 NICs currently cost £2.85 per week, and are mandatorily paid by the self-employed who pay them if they make profits of more than £6,025.
Those who make less than £6,025 don’t have to pay Class 2 contributions, although they can make voluntary contributions.
Class 2 NICs enable entitlement to the basic state pension, the new state pension, contribution-based employment support allowance, maternity allowance and bereavement benefits – once you’ve earned a certain number of qualifying years for each benefit.
However, the government has now announced that it will introduce the National Insurance Contributions (NICs) Bill in 2018, with the measures it will implement taking effect one year later, from April 2019.
The exchequer secretary to the Treasury, Andrew Jones, says: “The Government 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 committed to abolishing Class 2 NICs to simplify the system, so it is therefore right to take the time to ensure that there are no unintended consequences for the lowest paid.”
Chancellor Philip Hammond has already U-turned on plans announced in the 2017 Spring Budget to increase Class 4 NICs, which are paid by self-employed workers who make a profit of £8,164 and more.
Low earners may be hit by the abolition of Class 2
Moneywise reported last year that replacing Class 2 voluntary contributions with Class 3 contributions, which cost a whopping £14.25 a week, could result in many low earning self-employed workers missing out on the state pension.
This is expected to particularly impact those in the performing arts field whose earnings can vary dramatically year-to-year.
Kate Smith, head of pensions at Aegon comments: “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.”
However, she points out that the delay won’t be welcome by everyone. “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.”
It also means those self-employed who earn more than £6,025 will have to shell out an additional £148.20 in Class 2 payments, which they hadn’t expected to pay.