Class 2 National Insurance Contributions
Class 2 National Insurance Contributions (NICs) are paid by self-employed taxpayers and members of partnerships if their annual profits are over £5,965. Class 2 NICs are payable at a flat weekly rate currently, £2.80. Class 2 NICs count towards payments such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.
In the Autumn Statement it was confirmed that Class 2 NICs will be abolished from April 2018. This measure was first announced at Budget 2016. Going forward, the self-employed contributory benefit entitlement will be accessed through Class 3 and Class 4 NICs. Self-employed people with profits below the Small Profits Limit will be able to access contributory employment and support allowance through Class 3 NICs. There will be provisions put in place to support self-employed individuals with low profits during the transition although they are likely to face higher costs in the future. The legislation will also ensure that self-employed women will continue to be able to access the standard rate of Maternity Allowance
The collection of Class 2 NICs changed with effect from the 2015-16 tax year and is being made through the existing self-assessment system together with Income Tax and Class 4 NICs. A liability to Class 2 NIC should be reported on an individual’s self-assessment tax return and the first payment relating to 2015-16 will become due on 31 January 2017. Taxpayers who earn less that the small profits threshold are no longer required to request exemption from Class 2 NICs as this will be handled through self-assessment.