26th February 2016
The government has been urged to hold fire on further national insurance contribution (NIC) changes for the self-employed.
The Low Incomes Tax Reform Group (LITRG) has said the government needs to delay changes to NICs to ensure ‘the impact is fair and those affected understand the implications’.
In the 2015 Budget, the government confirmed it would abolish Class 2 NICs and instead of paying two classes of NICs – Class 2 and Class 4 – the self-employed will pay just one class, Class 4.
Although this is a simplification of the rules and means any entitlement to state benefits such as state pension and maternity allowance would be dependant on Class 4 contributions, the proposal comes shortly after a change to the pay Class 2 NICs are paid that happened last April.
LITRG said the government should wait until the final recommendation are made by the Office of Tax Simplification (OTS) on aligning income tax and NICs before it makes any more changes. There are rumours that NICs will be rolled into income tax.
LITRG has also suggested that reform of Class 3 NICs, which are voluntary contributions, should be considered because of the impact of the abolition of Class 2.
Anthony Thomas, LITRG chairman, said: ‘It is crucial that the government consider the two overlapping changes to Class 2 and the OTS alignment proposal before they make any radical change that affects millions of people.
‘We are concerned that the earliest proposed start date of April 2017 for abolition of Class 2 NICs means the changes may be rushed through without adequate further consultation together with a lack of publicity and guidance for the people affected.’
A number of self-employed people pay voluntary Class 2 NICs in order to protect their entitlement to contributory state benefits. However, the story is different for those on low incomes. Some on low incomes would be protected by the availability of NI credits, others would have to pay Class 3 NICs instead which could cost them five times more.
This could result in no contributions being paid at all which means more workers would be relying on means-tested state benefits in future.
‘It is surely better that someone pays something and gets something, rather than paying nothing and the burden falling on the state later,’ said Thomas.