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