NI breather for UK low-income self-employed

NI breather for UK low-income self-employed

A government U-turn over abolition of a tax band in national insurance contributions (NICs) that could see costs increase by 400% for the poorest self-employed has been welcomed by campaigners, including the Low Incomes Tax Reform Group (LITRG).

The government was all set to abolish Class 2 NICs from April 2018, forcing those who previously paid at this rate on to Class 3 NICs, which are five times the amount.

The move would have affected some of the lowest paid self-employed, such as hair-dressers and part-time tutors, with profits below the small profits threshold (currently £6,025).

This will have the effect upon this group of obliging them to move up to the far higher rates of Class 3 NICs if they want to build up an entitlement to contributory benefits such as the state retirement pension.

While LITRG welcomed the government’s decision to defer the move for one year to allow for consultation, it said that it was 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 similar to the present Class 2, perhaps by introducing a lower rate of Class 3.

LITRG chair Anne Fairpo, pictured above, said that she welcomed the announcement by the government that it intends 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”.

‘The law of unintended consequences’

She added that LITRG “looks forward to working with the Government to lessen the risk of unintended consequences”.

She reiterated that 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,” she said, “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.”

LITRG said that the delay, which means the measures in the as yet unpublished National Insurance Contributions (NICs) Bill now take effect one year later, from April 2019,  includes “the abolition of Class 2 NICs, reforms to the NICs treatment of termination payments, and changes to the NICs treatment of sporting testimonials”.