The Government has announced that it will be delaying the abolition of National Insurance Contributions for low-paid self-employed workers for a year.
The delay relates to the removal of Class 2 National Insurance Contributions (NICs) and has been introduced to allow consultation on the impact of its abolition on the self-employed on low incomes.
When Class 2 NICs do end, those with profits below the small profits threshold (currently £6,025- £8,164) are expected to be about £130 a year worse off and will have to pay Class 3 contributions – five times as much as Class 2 contributions – if they want to build up an entitlement to contributory benefits such as the state retirement pension.
The Low Incomes Tax Reform Group (LITRG), a Chartered Institute of Taxation (CIOT) initiative, hopes there may be a way for the low-income self-employed to continue to be able to make savings towards their pension at a rate like the present Class 2, possibly by introducing a lower rate of Class 3.
LITRG Chair Anne Fairpo said: “We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.
“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension."
Director of Policy, Simon McVicker, at the Association of Independent Professionals Self Employed (IPSE), expressed his disappointment at the delay, adding: “The Government doesn’t seem to know what to do with the self-employed. In March they tried to raise Class 4 NICs before backtracking, they introduced a dividend tax and then changed it as soon as they could, and now they can’t deliver on a significant commitment.
“The abolition of Class 2 NICs was a speck of bright light in an otherwise gloomy picture for the self-employed.”
A Treasury spokesman explained that the delay was “simply about giving us more time to consult with those who are concerned about the changes and getting the detail right. It is therefore right to take the time to ensure that there are no unintended consequences for the lowest paid.”