Class 2 and 4 NIC merger delayed until 6 April 2019

The abolition of Class 2 National Insurance Contributions (NIC) will now be delayed until 6 April 2019, according to a new written statement to the House of Commons.

HM Treasury has written to MPs to let them know that the move has been delayed to allow additional consultation with interested parties, particularly in respect of the effect of the abolition of Class 2 NIC for lower earners.

Currently, self-employed workers that have profits below the small profits threshold (£6,025 for 2017/18) can protect their rights to the state pension and certain other state benefits by paying voluntary Class 2 contributions – this includes 967,000 people, according to the Office of National Statistics, who had income below the threshold.

However, those workers with profits between the Class 2 and Class 4 thresholds (£8,164) only pay Class 2 NICs of £148.20 per year to gain a full year’s NI credit, whereas Class 4 NIC currently provides the taxpayer with no NI credits, as it is a tax on profits.

The abolition of Class 2 NIC and a subsequent reform to class 4 NIC would leave some low earning taxpayers paying into the more expensive Class 3 NIC (£714 for 2017/18), to retain entitlement to the same state benefits.

There are also concerns amongst some professionals that the need to make a Class 3 NIC payment may create barriers and discourage lower earners from protecting their state benefit entitlements.

However, a system of NI credits would be provided for no payment where the individual has profits between the current small profits threshold and the higher Class 4 NIC threshold.

With all this in mind, it is apparent why the Treasury has decided to delay the abolishment of Class 2 NIC until thorough consultations have been completed.

LINK: Update on the National Insurance Contributions Bill

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