Consultation published on self-employed NICs

The Department for Work and Pensions (DWP), HM Revenue and Customs (HMRC) and HM Treasury have published a combined consultation on the abolishment of Class 2 National Insurance Contributions (NICs) for the UK’s self-employed community.

The plans include introducing a contributory benefit test to Class 4 NICs for the self-employed.

It follows changes to the way in which Class 2 NICs will be collected for the 2015-16 financial year onwards and a previous government announcement that Class 2 NICs will be merged into Class 4 NICs, which will be made contributory, but not until April 2017 at the earliest.

At present, Class 2 NICs offer self-employed professionals a host of financial benefits: the basic state pension, bereavement benefits, maternity allowance and contributory employment and support allowance.

The suggested reforms are designed to simplify the system, giving self-employed people access to contributory benefits whilst aligning the treatment of different self-employed NIC payers.

The proposed restructuring of the amount of Class 4 NICs payable is akin to the current Class 1 NIC regime:

• Self-employed profits above a lower profits limit (presently £8,060 for Class 4) would pay a contributory Class 4 NIC at a fixed percentage rate.

• Those with profits in between a small profits threshold (presently £5,965 for Class 2) and the LPL would pay NICs at zero per cent, but still qualify for contributory benefits including state pension.

• Those with profits below the SPT would not be liable to or able to pay Class 4 NICs but could pay Class 3 voluntarily to accrue qualifying years for contributory benefits including state pension.

The consultation also considers the following areas:

• Access to maternity allowance.

• The self-employed with multiple sources of earnings including those moving between employment and self-employment.

• Special groups including share fishermen and volunteer development workers.

• Those not self-employed in the UK but eligible to pay voluntary Class 2 NICs (such as those self-employed working abroad, mariners on foreign vessels etc).

• Those specifically treated as self-employed for NICs.

The consultation on self-employed NICs closes on 24th February 2016. Comments on the issues raised should be sent to Peter.Bickley@icaew.com by 5th February 2016.

Last updated: 24th December 2015