Government U-turn sees Class 2 NICs remain for self-employed

The UK Government has announced it will not be scrapping Class 2 National Insurance contributions (NICs) for the self-employed during this parliament.

A planned tax cut for over three million self-employed professionals was planned by former Chancellor, George Osborne.

At the time, the Treasury predicted the move would give millions of self-employed people an annual tax cut of £134 on average.

Alarm bells were ringing about the likelihood of Class 2 NICs being abolished last autumn, when the Government agreed to delay their abolition by 12 months.

Those fears came true yesterday when the Government confirmed that the plans had now been shelved during the term of this parliament.

The original plan was to scrap Class 2 NICs paid by self-employed individuals earning £6,205 or more a year. However, the Government cited concerns that in doing so they would hit 300,000-plus self-employed people earning less than £6,205 a year who pay Class 2 NICs voluntarily to gain access to their state pension.

These people would have been expected to pay Class 3 NICs instead, increasing their weekly payments from £2.95 to £14.65.

The decision has disappointed many, including the Federation of Small Businesses (FSB), which views this as a form of tax grab from the Treasury, netting them “more than £350m annually in the three years to 2021”.

Mike Cherry, Chairman, FSB, insists the Treasury “should have worked harder” to find ways to look after low-earners.

“The self-employed community has been let down today, missing out on a promise to reduce their tax burden,” added Cherry.

“This raises serious questions once again about the government’s commitment to supporting the self-employed.

“Class 2 NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up.”

Nevertheless, Treasury Minister, Robert Jenrick insists that the Government “remains committed to simplifying the tax system for the self-employed”.

“[The Government] will keep this issue under review in the context of the wider tax system and the sustainability of the public finances,” added Jenrick.

Date published 7 Sep 2018 | Last updated 7 Sep 2018