I have heard there will be changes to Class 2 National Insurance contributions. I am self-employed but don’t really know what these contributions are or whether these changes will affect me. Can you explain?
As a self-employed individual, it is good that you are aware that there are changes happening that may affect what taxes you pay. In the UK, National Insurance contributions are a type of tax which is paid by both employed and self-employed people as well as employers, albeit at slightly different rates.
Being self-employed means that you pay two types of National Insurance contributions, Class 2 and Class 4, however I will only focus on Class 2 contributions at this time.
Class 2 National Insurance has historically been paid at a set weekly rate that tends to increase at the start of each new tax year. The current rate for the 2017/18 tax year is £2.85 per week if your profits from self-employment are over £6,025. If your profits are less than this then you are not liable to pay the contributions, however you may choose to make voluntary contributions in order to maintain your National Insurance record, which builds up your entitlement to benefits.
The rate is shown as a weekly amount as this is how it was paid in the past - you may have heard people say ‘paying their National Insurance stamp’ which was quite literally how the payment was collected with the stamp being the proof that the contribution had been made.
This then changed to individuals being able to pay the contributions by monthly, quarterly or six-monthly direct debit. However, in 2015 this method of payment was replaced with contributions being made through the self-assessment tax system which meant they were then paid annually at the same time as other tax liabilities were paid.
Going forward, there are big changes to National Insurance which are designed to simplify the tax system. The proposed changes were announced in the summer 2015 Budget however, despite various time frames being put in place for the proposals to be introduced, they have now been delayed for implementation until 6 April 2019, meaning the 2019/20 tax year will be the first year this change is seen.
The overall impact will be that Class 2 National Insurance as we know it will be abolished from 6 April 2019. In its place, the thresholds on which Class 4 National Insurance are currently paid will be changed so that self-employed individuals will still have access to contributory state benefits as they would have previously by paying Class 2 contributions. At the time of writing, the new Class 4 National Insurance thresholds have not yet been published so it is difficult to say at this stage what this will mean on an individual basis.
Advice: If you would like to discuss your circumstances in greater detail, Ashdown Hurrey can advise on this matter in addition to other tax, accountancy and business matters. Contact Martin Copland on 01424 720222 or email him at firstname.lastname@example.org.