Class 2 NIC changes postponed until 2019

Affecting anyone operating as a self-employed stylist (including anyone renting a space or chair from a salon) the much publicised changes to class 2 have been delayed – a year later than first thought – now with effect from April 2019.

Class 2 NICs are flat-rate weekly contributions paid by the self-employed to gain access to contributory benefits. The self-employed also pay Class 4 NICs on profits above the Lower Profits Limit. Class 4 NICs do not currently give access to contributory benefits. The main change in April 2019 is that class 2 National Insurance will be abolished.

The government has decided to implement a one-year delay to allow time for consultation on the impact of the abolition of class 2 National Insurance on self-employed individuals with low profits. When these are abolished, those with profits below the small profits threshold (currently £6,025) will have to pay class 3 contributions (£14.25 a week), which are five times as much as class 2 (£2.85 a week) if they want to build up an entitlement to contributory benefits such as the state pension.

The Low Incomes Tax Reform Group is keen for a way to be found for low-income, self-employed people to be able to make affordable savings towards their pension at a rate similar to class 2, perhaps by introducing a lower rate of class 3.

LITRG chair Anne Fairpo said: ‘We welcome the announcement that the government intends to consult with organisations such as ours that have concerns relating to the impact of the abolition of class 2 on self-employed individuals with low profits. This will be a significant change to how people contribute to qualify for certain benefits and the state pension.’

She added that the ‘breathing space’ was welcome because of concerns that the abolition of class 2 was being rushed through without adequate consultation, together with a lack of publicity and guidance.