Possible Replacement of Class 2 NI Contributions

penwise

I did not even notice this bring mentioned in the media yet it will have a big impact on any one trying to go self employed with a small income.

redux

I'm surprised this is supposed to be news, or such a big change.

I'd already been told by someone at the contributions section of HMRC that separate collection of class 2 was going to be phased out soon, and in future it would be accounted for in the tax return calculation.

sherpavanwoman

Hi everyone,

this HMRC information might help...;)

Class 2 National Insurance Contributions
Who is likely to be affected?
Self-employed people who may be liable to pay income tax and National Insurance
Contributions (NICs).

General description of the measure
The measure will change the mechanism for collecting Class 2 NICs. It will enable selfemployed
customers to pay their Class 2 NICs through Self Assessment (SA) alongside
income tax and Class 4 NICs.

The measure will also change the structure of Class 2 NICs so that only those with profits
(chargeable to tax under Chapter 2, Part 2 Income Tax (Trading and Other Income) Act
2005) above a profits threshold will be liable - those without profits or with profits below this
threshold will be able to pay Class 2 NICs voluntarily.
Policy objective
As part of a long-term trend, the number of self-employed individuals in the UK is growing,
with more people having multiple jobs and moving in and out of self-employment. Having two
separate collection methods for Class 2 and Class 4 NICs causes confusion and extra work
for both the self-employed and HM Revenue & Customs (HMRC). The policy objective is to
modernise the way Class 2 NICs is assessed and collected, making the system simpler and
more straight-forward and reducing administrative burdens on the self-employed and HMRC.
Background to the measure
The Office of Tax Simplification recommended that the Government review the National
Insurance processes for the self-employed and in particular, recommended collecting Class
2 NICs through SA.
In 2013 the Government consulted on this proposal to improve processes and simplify the
way that Class 2 NICs are collected and received strong support to collect Class 2 NICs
through the SA system.
The Government published its Summary of Responses in December 2013 and announced
this measure at Budget 2014.

Detailed proposal
Operative date
The measure will have effect from April 2015. Class 2 NICs will be collected through SA from
April 2016, for the 2015-16 tax year onwards. The current six monthly billing system will
cease from April 2015.

JezR

Yes sometimes it is better to wait for the individual departments to flesh out budget detail.

Kevi

If they abolish Class 2 contributions (£2.75 per week) - will that not leave all self-employed with no more qualifying years for the state pension? Will they have to make the 'Voluntary' contributions of £13.90 a week? Hmmm. Nice one George! Way to loose the self-employed voters!

JohnB47

sherpavanwoman wrote: »

Hi everyone,

this HMRC information might help...;)

Class 2 National Insurance Contributions
Who is likely to be affected?
Self-employed people who may be liable to pay income tax and National Insurance
Contributions (NICs).

General description of the measure
The measure will change the mechanism for collecting Class 2 NICs. It will enable selfemployed
customers to pay their Class 2 NICs through Self Assessment (SA) alongside
income tax and Class 4 NICs.

The measure will also change the structure of Class 2 NICs so that only those with profits
(chargeable to tax under Chapter 2, Part 2 Income Tax (Trading and Other Income) Act
2005) above a profits threshold will be liable - those without profits or with profits below this
threshold will be able to pay Class 2 NICs voluntarily.
Policy objective
As part of a long-term trend, the number of self-employed individuals in the UK is growing,
with more people having multiple jobs and moving in and out of self-employment. Having two
separate collection methods for Class 2 and Class 4 NICs causes confusion and extra work
for both the self-employed and HM Revenue & Customs (HMRC). The policy objective is to
modernise the way Class 2 NICs is assessed and collected, making the system simpler and
more straight-forward and reducing administrative burdens on the self-employed and HMRC.
Background to the measure
The Office of Tax Simplification recommended that the Government review the National
Insurance processes for the self-employed and in particular, recommended collecting Class
2 NICs through SA.
In 2013 the Government consulted on this proposal to improve processes and simplify the
way that Class 2 NICs are collected and received strong support to collect Class 2 NICs
through the SA system.
The Government published its Summary of Responses in December 2013 and announced
this measure at Budget 2014.

Detailed proposal
Operative date
The measure will have effect from April 2015. Class 2 NICs will be collected through SA from
April 2016, for the 2015-16 tax year onwards. The current six monthly billing system will
cease from April 2015.

Now I'm confused. This suggests no change for my wife - still paying class 2 NI voluntarily, as she will pay no tax. It's almost as if this statement pre dates the recent Budget announcement, which suggested that Class 2 would be abolished. Can anyone clarify?

gadgetmind

JohnB47 wrote: »

It's almost as if this statement pre dates the recent Budget announcement, which suggested that Class 2 would be abolished.

Yes, it relates the the shake up of Class 2 a few months ago rather than the one now being floated.

But remember, it's our job to do the long term planning that pensions require!

Retyre

This isn't just about changing the way that NI is collected for the self employed ie moving Class 2 into Class 4. This is about potentially altering the access to NI credits for a large group of people.

If Class 2 is being abolished and Class 4 being evaluated for collection then what happens if you don't pay Class 4 or the starting point or rules pertaining to NI "years" Credits in Class 4 are made so that you don't get NI credits? For the self employed this is mighty serious.

sherpavanwoman

JohnB47 wrote: »

Now I'm confused. This suggests no change for my wife - still paying class 2 NI voluntarily, as she will pay no tax. It's almost as if this statement pre dates the recent Budget announcement, which suggested that Class 2 would be abolished. Can anyone clarify?

Just spoken to National Insurance office (after hanging on for 30 mins!). Basically, the adviser said this:

The Class 2 NIC due will be calculated automatically in your 2015-16 self assessment tax return, which will be due for submission and payment in January 2017.

If you want to make payments in advance, rather than waiting for your tax bill, you can set up a budget payment plan. The HMRC will be providing more information on this, but it looks like you will be able to set it up via your HMRC online account.

This means that the contributions will not be collected until next year, so nothing will appear on this year's online tax return with regard to request for payment of Class 2.

Apparently, Class 2 can still be paid voluntarily and when it is abolished, it will be called Class 4......so it won't be necessary to pay Class 3 instead, as suggested in other comments.

We also need to wait and see which party wins now in May. :T

gadgetmind

But we already have class 4 for self employed people after a certain threshold.