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.
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.
The Chancellor of the Exchequer, Philip Hammond, today confirmed in his 2016 Autumn Statement that the personal allowance, which currently stands at £11,000 per annum for the tax year 2016/17, will be increased as per the announcements in previous budgets.
The personal allowance is the amount that an individual may earn before they have to start paying tax.
The increases that were previously announced mean that the personal allowance will be £11,500 starting from April 2017 for the tax year 2017/18 and will increase to £12,500 by the end of the current parliament.
Anyone who earns more than £11,500 currently (but less than £100,000) will benefit from the £500 increase in the personal allowance as follows:
Those who pay tax at the basic rate (currently 20%) will be £100 a year (around £8.33 a month) better off with the increase in the personal allowance.
Those who are subject to 40% tax will see £200 a year (£16.66 a month) more in their pay packets (plus any benefit they may gain from the increase in the 40% tax rate bracket).
There were rumours that the Chancellor may bring in the £12,500 personal allowance quicker than had previously been planned but this did not happen as it was confirmed this would likely be in the 2020s.
Once the personal allowance gets to £12,500 it will be increased in each year in line with inflation, unless any further increases are announced in subsequent budgets.
It was also announced that the Spring Budget will be the last budget at that time of year and that in 2017 the budget will move to being an autumn budget and there will be a subsequent spring statement, thus giving plenty of notice before any changes are introduced in the following April.
Today (3rd December 2014), in his Autumn Statement, George Osborne announced an unexpected but welcome change to the rates of Stamp Duty paid on property purchases. Not only were there changes in the rates but on the way the duty is calculated. Continue reading Stamp Duty Rates Changed→
Today (3rd December 2014) the Chancellor of the Exchequer, George Osborne, announced that instead of increasing to £10,500 per year, as had been previously announced, the personal allowance would be increasing to £10,600 with effect from April 2015 for the 2015/16 tax year.