The Low Incomes Tax Reform Group (LITRG) has welcomed a recent announcement by the Government that there will be a one-year delay before the removal of Class 2 National Insurance contributions (NICs) to enable consultation on the impact of its abolition on the self-employed with low incomes.
If Class 2 NICs were abolished, those with profits below the small profits threshold (currently £6,025) would currently have to pay Class 3 contributions, which are five times as much as Class 2 contributions, if they want to build up an entitlement to contributory benefits such as the state retirement pension. LITRG is keen for a way to be found for the low-income self-employed to continue to be able to make affordable savings towards their pension at a rate like the present Class 2, perhaps by introducing a lower rate of Class 3.
LITRG Chair Anne Fairpo said:
“We welcome the announcement by the Government that they intend to consult with organisations such as ours which have concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits. We look forward to working with the Government to lessen the risk of unintended consequences.
“The abolition of Class 2 NICs will be a significant change to how people contribute to qualify for certain benefits and the State Pension.
“We welcome the breathing space on this matter because of our concerns that the abolition of Class 2 was being rushed through without adequate further consultation, together with a lack of publicity and guidance for the people affected.”
The delay means the measures in the unpublished NIC Bill will now take effect one year later, from April 2019. This includes the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials.