September 12th, 2018Government 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.
