Tax & admin · 16 March 2016

The Budget 2016: Abolition of class 2 NI contributions mixed blessing for self-employed

class two NI

Class 2 National Insurance (NI) contributions are to be abolished from April 2018 – benefitting self-employed individuals to the tune of £130 each year.

The move – which was promised in the 2015 Conservative manifesto – was announced by chancellor George Osborne in his 2016 Budget speech.

These changes mean that freelancers and contractors earning less than £8,060 – the current Class 4 NI threshold – will be classed as zero-rate NI payers in future.

When the policy was initially proposed in 2015, the The Association of Independent Professionals and the Self Employed supported the proposals.  Simon McVicker, director of policy and external affairs at IPSE, said: “The removal of Class 2 NICs will be a big boost to those working as self-employed. It represents a major simplification of the tax system.”

However, some have expressed concerns about the eligibility of contractors for state pensions if they have not paid Class 2 contributions.

Responding to the government’s consultation on such changes, independent advisory body the Social Security Advisory Committee (SSAC) warned: “Sometimes, the benefits system operates uncomfortably for those who have significant peaks and troughs of income and expenditure. The aggregation of Class 2 NICs with tax liabilities could create such an event.

“As Universal Credit rolls out and begins to embrace the larger population of the self-employed, this may very well become an issue to consider.”

The Low Incomes Tax Reform Group (LITRG) also raised concerns about the changes. “We are concerned that the earliest proposed start date of April 2017 for abolition of Class 2 NICs means the changes may be rushed through without adequate further consultation together with a lack of publicity and guidance for the people affected,” said LITRG chairman Anthony Thomas.

If you’re a freelancer or contractor looking for a change of scenery as well as a change of tax regime, don’t miss our guide to alternative working spaces.

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ABOUT THE EXPERT

Hannah Wilkinson is a reporter for Business Advice. She studied economics and management at Oxford University and prior to joining Business Advice wrote for Kensington and Chelsea Today about business and economics – as well as running a tutoring company.

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