The Department for Work and Pensions (DWP), HM Revenue and Customs (HMRC) and HM Treasury have published a combined consultation on the abolishment of Class 2 National Insurance Contributions (NICs) for the UK’s self-employed community.The plans include introducing a contributory benefit test to Class 4 NICs for the self-employed.It follows changes to the way in which Class 2 NICs will be collected for the 2015-16 financial year onwards and a previous government announcement that Class 2 NICs will be merged into Class 4 NICs, which will be made contributory, but not until April 2017 at the earliest.At present, Class 2 NICs offer self-employed professionals a host of financial benefits: the basic state pension, bereavement benefits, maternity allowance and contributory employment and support allowance.The suggested reforms are designed to simplify the system, giving self-employed people access to contributory benefits whilst aligning the treatment of different self-employed NIC payers.The proposed restructuring of the amount of Class 4 NICs payable is akin to the current Class 1 NIC regime:
Self-employed profits above a lower profits limit (presently £8,060 for Class 4) would pay a contributory Class 4 NIC at a fixed percentage rate.
Those with profits in between a small profits threshold (presently £5,965 for Class 2) and the LPL would pay NICs at zero per cent, but still qualify for contributory benefits including state pension.
Those with profits below the SPT would not be liable to or able to pay Class 4 NICs but could pay Class 3 voluntarily to accrue qualifying years for contributory benefits including state pension.
The consultation also considers the following areas:
Access to maternity allowance.
The self-employed with multiple sources of earnings including those moving between employment and self-employment.
Special groups including share fishermen and volunteer development workers.
Those not self-employed in the UK but eligible to pay voluntary Class 2 NICs (such as those self-employed working abroad, mariners on foreign vessels etc).
Those specifically treated as self-employed for NICs.