Photo Caption: Sara Dennis, Business Services Manager at Bevan & Buckland
Initially revealed in the 2015 summer budget, the government has since confirmed that Class 2 National Insurance Contributions (NIC) will be abolished and Class 4 NIC reformed from 6th April 2018. The move is great news for the self-employed, who will pay just Class 4 NIC from the 2018/19 tax year, and certain to be welcomed after the recently proposed, then promptly scrapped, 2% Class 4 NIC tax hike.
Leading accountancy practice Bevan and Buckland works with businesses of all sizes and niches, including sole traders, so make it their mission to keep abreast of tax changes as and when they happen. Here Sara Dennis, Business Services Manager at Bevan & Buckland, reveals just what the abolition of Class 2 NIC means for those affected.
“The abolition of Class 2 NIC is good news for those with profits between the small profit threshold (£5,965 in 2016/17) and the lower profits limit of £8,060 who currently pay Class 2 NIC. Thanks to the abolition of Class 2 contributions and subsequent reform of Class 4 contributions, from April 2018 self-employed individuals, including those who are in a partnership, will be credited with Class 4 NIC without having to pay any NIC and gain access to contributions-based benefits,” said Sara.
The reforms haven’t received good reviews all round however, there are concerns for self-employed people with profits that are below the small profits threshold.
“Self-employed individuals whose profits fall below the small profits threshold will no longer pay £2.80 a week Class 2 NIC but from April 2018 will instead need to pay voluntary Class 3 NIC of £14.10 per week if they wish to qualify for contributions-based benefits. Many self-employed workers may not think this is worthwhile if they have low profits and will rely instead on means tested benefits in the future,” concluded Sara.