Simpler is not always cheaper is it?
The Chancellor, George Osborne, is abolishing Class 2 National Insurance Contributions (NIC) in a bid to support the self employed and reform the Class 4 National Insurance contributions.
Class 2 NICs are payable at a rate of £2.75 per week if you are self employed, however those with profits below £5,885 a year can apply for a small earnings exception.
This will therefore save self-employed persons £143 a year and take the hassle out of collecting a relatively small amount of money
However, the government mentioned that Class 4 NICs would also be reformed with an introduction to a new contributory benefit test. Class 4 NICs are charged at 9% on profits above £7,956 and 2% on profits over £41,865.
So it may be fair to assume that the ‘reform’ could balance out the move on the Class 2 NICS and a method of recovering the tax giveaway, simple right?
This simplification of the National Insurance system for the self-employed will probably be welcomed however it is vital that people do not lose out on receiving benefits to which they have previously contributed. For example, it is currently not possible to pay Class 4 NICs unless your profits are above currently £7,956, however, the self-employed can still make Class 2 NICs even if their profits are below the Small Earnings Exception threshold of £5,885.
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