September 12th, 2018

Government U-Turn on the Abolition of Class 2 National Insurance

The self employed pay two types of National Insurance Contributions.  Class 4 contributions are worked out based on the profits of the business.  Class 2 contributions are a weekly flat rate currently paid at £2,95 per week if profits are over £6,025.

It is only the Class 2 contributions that carry entitlement to short-term state benefits such as employment and support allowance, maternity allowance, widowed parent’s allowance, state pension and bereavement benefits.  The low-earning self employed can choose to pay Class 2 contributions voluntarily in order to retain these entitlements.

The government had originally planned to abolish Class 2 contributions with effect from 6 April 2018 but delayed this until 6 April 2019.  In a recent announcement, however, the Treasury has announced that the abolition will not go ahead during this parliament.  The next general election is scheduled for May 2022 so Class 2 contributions will be staying with us for a while yet, barring a snap election.

This is a welcome move as it removes the problem of how the self employed were to accrue benefit entitlement post-Class 2.  One of the proposals was to make Class 4 contributions benefit-entitling with an accompanying rise in the main rate, currently 9%.  Retaining Class 2 contributions could signal that Class 4 contributions will stay as they are, at least for the time being.

National Insurance reform in the future cannot be ruled out – it is a complex area of taxation after all – but it looks like it might be on the back burner for the next couple of years at least.

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John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys keeping fit and is a Liverpool FC season ticket holder.

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