The Treasury has announced it will push back the abolition of Class 2 NICs for a further year, as tax campaigners welcomed the “breathing space” offered to the UK’s low-earning self-employed until April 2019.
Class 2 National Insurance contributions (NICs), which allow those with profits from £6,025 to pay £2.85 per week to build entitlement to a state pension and benefits such as the employment and support allowance (ESA), were due to be scrapped in April 2018, but have been granted a 12 month extension until 2019.
The abolition was initially tabled by chancellor Philip Hammond in the Spring Budget, alongside the introduction of a Small Profits Limit in Class 4 contributions, an increase which was swiftly scrapped.
When Class 2 NICs now end in April 2019, those in the lower threshold will lose their state pension entitlement unless they contribute an extra £593 per year into the Class 3 scale. At payments of £14.10 per week – five times the cost of Class 2 – the Treasury’s plans were criticised as disproportionately affecting the lowest paid workers.
Tax campaigners have welcomed the one year extension. Anne Fairpo, chair of the Low Income Tax Reform Group (LITRG), said the additional 12 months could prove vital for low earners.
“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the state pension,’ Fairpo said.
“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 Treasury also suggested it was considering support measures for those hit hardest by the removal of Class 2 NICs.
Low-paid self-employed urged to pay Class 2 NICs before it’s too late
Sign up to our newsletter to get the latest from Business Advice.