Stuck in Second Class

 

The Government announced recently that they will not be proceeding with the planned abolition of Class 2 National Insurance Contributions. The abolition had been due to be effective from 6 April 2019 after being postponed for a year.

A Government statement cites the negative impact the abolition would have on self-employed individuals with low profits as the reason for the shelving of the policy. It goes further to say that options which had been considered to address this impact would have made the tax system more complex (yes, it is possible!) and would therefore have been in direct contradiction to the original objective of the policy.

The move has drawn fire in the press and from political opposition. But will all of the self-employed community feel aggrieved?

Individuals with higher profits had stood to gain State Pension qualifying years and access to other state benefits based on the level of their profits alone. This is no longer the case and they will not now benefit from the removal of the annual cost Class 2 contributions represents (currently £153.40).

On the other hand, the news will be welcomed by those self-employed individuals with low profits and those who are non UK resident. They will, for now, be spared the requirement to make voluntary Class 3 National Insurance Contributions to maintain their entitlement to UK state benefits. At £14.65 per week, the cost of making Class 3 contributions is around five times more expensive than the weekly £2.95 Class 2!

The Government has stated that it remains committed to simplifying the tax system for the self-employed. It will be interesting to see the next proposals and we will, of course, keep you posted.

To discuss any of the issues raised in this blog please contact John Kean (john.kean@aab.uk) or your usual AAB contact.