LITRG calls for delay on National Insurance changes for self employed
14 March, 2016
The Low Incomes Tax Reform Group (LITRG) has asked the Government to delay changes to national insurance contributions (NICs) for the self-employed to ensure the impact is fair and those affected understand the implications.
The 2015 Budget confirmed the Government’s intention to abolish Class 2 NICs. This means that instead of paying two classes of NICs (Class 2 and Class 4), the self-employed will pay just one (Class 4) in the future.
This means that entitlement to contributory state benefits, such as state pension or maternity allowance, in the future would be dependent upon Class 4 NICs paid.
However, this proposal comes shortly after the method for paying Class 2 NICs changed last April.
It has led LITRG to urge the Government to wait until the final recommendations are made by the Office of Tax Simplification (OTS) on the separate plans for closer alignment of income tax and NICS, before it decides to press ahead with any more changes to self-employed NICs.
Anthony Thomas, LITRG Chairman, said: “It is crucial that the Government consider the two overlapping changes to Class 2 and the OTS alignment proposal before they make any radical change that affects millions of people.
“We are concerned that the earliest proposed start date of April 2017 for abolition of Class 2 NICs means the changes may be rushed through without adequate further consultation together with a lack of publicity and guidance for the people affected.
Many self-employed people currently pay voluntary Class 2 NICs to protect their entitlement to contributory state benefits.
While it is proposed that some on low incomes would be protected by the availability of NI credits, others would be required to pay Class 3 NICs instead which could result in a five-fold increase in the cost to them.
Such a significant increase in cost might result in no contributions being paid because of the cost, which may result in future reliance on means-tested state benefits.
Mr Thomas added: “It is surely better that someone pays something and gets something, rather than paying nothing and the burden falling on the state later.”
If you would like to know more about the proposed changes, and how they might affect you, please contact us.