Draft legislation for the abolition of Class 2 contributions

07 December 2016

The 2016 Autumn Statement confirmed the government’s intention to abolish Class 2 NICs from 6 April 2018.

Geographical extent – The changes will extend to all four nations of the UK. The draft legislation details the legislative amendments required for both Great Britain and Northern Ireland.

Class 2 National Insurance contributions (NICs) are flat-rate weekly contributions paid by the self-employed to gain access to contributory benefits. The 2016 Autumn Statement confirmed the government’s intention to abolish Class 2 NICs from 6 April 2018. This means that instead of paying 2 classes of NICs (Class 2 and Class 4), the self-employed will pay just one class of NICs (Class 4) in the future. This builds on recommendations of the Office of Tax Simplification and will simplify the NICs system for millions of self-employed people.

Draft legislation has been published to change the structure of Class 4 NICs to introduce the Small Profits Limit. Changes will also be made to benefit entitlement rules to allow Class 4 NICs to count for benefit entitlement purposes where annual taxable profits are at (or exceed) the Small Profits Limit.

Class 3 NICs which can be paid voluntarily to protect entitlement to the State Pension and Bereavement Benefit will be expanded to give entitlement to Maternity Allowance and contributory Employment and Support Allowance for the self-employed.

A tax information and impact note has also been published.

 

If you have any questions about this change, please contact Christopher Orton on email: christopher.orton@hmrc.gsi.gov.uk.