Class 2 NICs Abolished From 2018

The self-employed on lower earnings will now have to pay Class 4 NICs.

Who Pays Class 2 NICs?

Class 2 National Insurance Contributions are paid by self-employed people who earn below a certain threshold. The payment of contributions (which are currently set at £2.80 a week) enables those people access to contributory benefits.

However, the 2016 Autumn Statement confirmed that Class 2 NICs will be abolished with effect from 2018/19 and the self-employed will then have to pay Class 4 (or voluntary Class 3) NICs.

Complex Rules

The rules around this are quite complex and there will apparently be some transitional help. But in essence, Class 4 contributions will need to be paid by the self-employed on earnings over the Lower Profit Limit.

For 2017/18 the Lower Profit Limit was £8,164 and any profit between that and £45,000 was charged at 9%. Profits over £45,000 are subject to a charge of 2% for Class 4 NICs.

Payment is Dependent on Profits

Once the Class 2 NICs are abolished a new threshold will be introduced called the Small Profits Limit. This will be equivalent to 52 x the Lower Earnings Limit. For 2017/18 this is £6,025.

Anyone whose profits fall between the Small Profits Limit and the Lower Profits limit will not need to pay the Class 4 NI contributions but will be treated as if they have paid them.  In particular this gives access to the new State Pension.