Possible Replacement of Class 2 NI Contributions

drumtochty

This may be bad news as they are a no brainer and inexpensive way for people in certain circumstances to increase their contribution years for their state pension.
I thought this would happen.

From the Budget Book.

National insurance contributions
2.36. Abolition of Class 2 National Insurance contributions (NICs). At Budget 2015 the government announced its intention to abolish Class 2 NICs in the next Parliament and reform Class 4 NICs to introduce a new benefit test. The government will consult on the detail and timing of these reforms later in 2015.

penwise

This would be a real shame

WillowCat

I think a lot of people have exploited the loophole by claiming to be self employed in order to pay class 2. It's much cheaper than voluntary contributions - which of course they would be totally entitled to make.

I can only assume they're going to bring it inline with employed work - i.e. you have to actually earn a certain amount before you can pay contributions. It does seem a shame that genuine small businesses in the set up phase, or going through a slowdown, will not be able to continue getting credits but it's the same old story that the few will spoil it for the many.

kidmugsy

Can't grumble: we've all been pointing out the absurdly good value of this to the user; that means it's absurdly bad value to the exchequer i.e. the other taxpayers.

Spidernick

WillowCat wrote: »

I think a lot of people have exploited the loophole by claiming to be self employed in order to pay class 2. It's much cheaper than voluntary contributions - which of course they would be totally entitled to make.

You don't have to be self-employed to pay Class 2. It's been a standard planning tool for employees going abroad to work for years. They an pay Class 2 as voluntary contributions, which ironically give better benefits than the more expensive Class 3 contributions.

JezR

As I have mentioned on here before that until the days of Gordon Brown class 2 and 3 NI used to have a broadly similar cost. The change was made so as to increase NI paid by most self employed through class 4 without affecting those on low earnings by a compensating drop in class 2. All that may have developed over the years is an increasing number of people paying class 2 when they aren't meaningfully self employed and are in a situation where they should really be paying class 3 and would have done pre-2000. Maybe the consultation document will bring out the numbers on this.

If you are usually self-employed in the UK and you then work abroad temporarily abroad for less than 2 years then paying class 2 is not voluntarily unless you are not working in a country with a reciprocal arrangement because you don't pay the equivalent of NI abroad.

Retyre

This could be a real loss for some like me who are genuinely self employed without making a fortune. I have thirty five years NI but due to opting out of SERPS for so long my State Pension is at the £113 level meaning I need roughly another nine years of stamp to get the full new basic state pension. If any new Class 4 NI rules that allow contributions aren't similar or allow payment at a conservative earning level I'm seriously missing out.

Conversely my wife (also self employed) who has 35 years NI without ever contracting out would be better off never paying NI again.

My view is that this has been thrown out there to see how the hoards of newly self employed people react. If there's not a strong reaction I fear a much worse position for the self-employed for whom this Govt espouse their support. I have no problem with taking away the right to Class 2 for those without bona fide businesses, they should be relatively easy to identify.

drumtochty

In saying that most people do not know this trick but lots use it.

Set up a limited company and work contract to an employer outside IR 35

This is you and your partner's only job and say your partner stays at home.

Company turn over £100,000

Business expenses say £5,000
Salary 1 £7,956 no employers or employees NI
Salary 2 £7,956 no employers or employees NI
Dividend 1 £44,500
Dividend 2 £44,500

each director gets £3.90 a month basic state pension and £1,75 second state pension a week added for each year the company is run and is turning over these sums and total employees and employers NI contribution is zero.

OH and if you miss a years contributions that costs a lump sum about £600 to buy back and if you buy £1 of second state pension using the new Class 3A contribution for a younger pensioner that is circa £800 lump sum.

Aye something is just not right with these different routes to increasing your pension.

JohnB47

Retyre wrote: »

This could be a real loss for some like me who are genuinely self employed without making a fortune...

And to my wife, who's genuinely self employed, with a low income, paying Class 2. She's currently got 31 years contributions and needs another 4.

kidmugsy

If enough people make a fuss perhaps Osborne will announce that it's a Coalition policy and a Conservative government will change it. There's no end to the brass neck of politicians.

Retyre

kidmugsy wrote: »

If enough people make a fuss perhaps Osborne will announce that it's a Coalition policy and a Conservative government will change it. There's no end to the brass neck of politicians.

It needs a lot more attention, the media are focussed on different aspects of the budget and haven't cottoned on that with the number of self-employed this is now a mainstream issue. Part of the problem is that no reporter can identify with Class 2 NI, now if you were talking about NI that affected their state pension........