Class 2 National Insurance abolition deferred From April 2018 to April 2019
What is class 2 National Insurance and what is it for?
Class 2 national insurance contributions (NICs) cost £2.85 a week / £148.20 a year and are due if you are self-employed and earn more than £6,025/yr. These contributions qualify you for:-
- the basic state pension
- benefits such as maternity allowance and contribution-based employment and support allowance
If you earn less than £6,025/yr, you don't have to pay national insurance. But you can choose to pay class 2 NICs voluntarily to make yourself eligible for the same set of benefits.
The payment is collected annually from you using the tax return system and is added to your tax payments.
How will the abolition of class 2 NICs affect me?
George Osborn announced the abolition of class 2 NICs in the 2015 Summer Budget. He said the decision followed recommendations from the Office of Tax Simplification, and would help make the tax system more straightforward and modernise NICs for the self-employed.
The Treasury had planned to axe class 2 NICs in April 2018, but now says it will do so in April 2019 instead. The effect of the abolition – and the delay announced this week – depends on your income bracket:
If you're self-employed and earn more than £6,025/yr
You won't have to pay class 2 NICs anymore but will still be treated as if you paid them for gaining access to contributory benefits. So, you'll still qualify for the state pension and other benefits but will save £148.20/yr.
If you're self-employed and earn less than £6,025/yr
You'll no longer be able to voluntarily pay class 2 NICs to qualify for the state pension and other benefits. To continue to qualify you'll need to pay class 3 NICs instead, which will cost £741/yr instead of £148.20/yr – so you'll pay an extra £592.80/yr, though you'd save this figure during the 12-month postponement.
So the year's delay just announced is bad news for self-employed people earning more than £6,025/yr – you'll have to keep paying class 2 NICs for another year instead of getting the benefits without paying anything.
But it's good news for the small number of self-employed people who earn less than £6,025/yr and choose to pay national insurance, because they'll be able to pay much cheaper class 2 NICs for another year. The Treasury says this amounts to 2% of NIC-paying self-employed people.