Treasury delays NIC hike for self-employed

Professional Adviser reports...

The Treasury has confirmed it will delay increases to National Insurance contributions (NICs) for the self-employed for a year to April 2019.

The NICs bill is set to scrap Class 2 NICs, where those who are self-employed and earning below the small profits threshold of £6,025 can pay a weekly rate of £2.85 in order to receive state pension entitlements.

Under the new rules introduced in 2019 this group will have to pay a voluntary Class 3 NICs rate in order to gain the same entitlement, which is currently set at £14.25 – more than four times the Class 2 rate.

In a statement, secretary to the Treasury Andrew Jones said: “The government has decided to implement a one year delay to allow time to engage with interested parties and parliamentarians with concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits.”

He said the measure was intended to “simplify the system” but that the government had decided to take the additional year to avoid “unintended consequences for the lowest paid”.

Aegon head of pensions Kate Smith said: “This will be welcome news for some of the UK’s lowest earners, as they will continue to have the option to pay the cheaper Class 2 NICs for another year, instead of having to pay Class 3 contributions.”

She added: “Unfortunately it will be less well received by the self-employed with annual profits between £6,025 and £8,164 (2017/18) who were looking forward to not having to pay any NICs and receiving NI credits to build up their entitlement to the state pension.

Issue of fairness

At the weekend it was reported the Treasury was considering a crackdown on “bogus” self-employment in a bid to stem the avoidance of billions of pounds of tax.

In an interview, financial secretary to the Treasury Mel Stride said there was an “issue of fairness” in deciding whether to apply the same rules to the private sector as now exist in the public sector.

In March, Chancellor Philip Hammond U-turned on a Spring Budget proposal to raise Class 4 NICs for the self-employed from 9% to 10% in 2018 and then up a further percentage point to 11% in 2019.