Changes to Class 2 National Insurance contributions

07 May 2015

By Penny Lupton, PwC's private client tax team in Newcastle

The recent Budget in March 2015, announced plans to abolish Class 2 National Insurance contributions (NICs) next year. But in the meantime, the way those contributions are collected is changing.

Class 2 NICs are paid by the self-employed and members of partnerships at a flat rate of £2.75 a week (£2.80 from 6 April 2015) if their annual profits are over £5,965.

Until now payments were collected either by six monthly bills or through regular direct debits. But for the 2015/16 tax year, Class 2 NICs will instead be collected through the existing self-assessment system. This will be alongside income tax and Class 4 National Insurance Contributions, which are also payable by the self-employed at 9% and 2% of their taxable income.

A liability to Class 2 NIC will be reported on the individual’s self-assessment tax return.  Those with profits below £5,965 will no longer need to actively request exemption from Class 2 NICs as this will be dealt with through self-assessment.

Payment will be collected through the normal processes with the first payment due 31 January 2017.  If the taxpayer needs to make payments on account then additional payments will also be needed towards the following year’s liability.  An additional 50% of the amount due will also be payable on 31 January 2016 with the remainder on 31 July 2016. 

It will be possible for those affected to apply for a ‘budget payment plan’.  This will allow them to made regular advance payment of Class 2 NICs to spread the cost over the year.

For those currently paying by Direct Debit these collections will automatically stop from July 2015 as the transition to the new system takes place.  HMRC is writing to each affected taxpayer to confirm this position.

It remains to be seen how the plans to abolish Class 2 NICs proceed following the election but for those self-employed taxpayers at least, part of their tax obligation is changing.

If you have any questions about National Insurance contributions, please do get in touch.

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