3 things self-employed and small business owners need to know about NIC
National Insurance for the self-employed is a complex area. While Hammond may have changed direction on raising Class 4, don’t overlook other upcoming NIC changes.
1. Class 2 contributions will be abolished in 2018
This sounds great at first glance. A saving of £2.80 per week is better than nothing. But Class 2 ensured the self-employed had access to contributory benefits like Maternity Allowance, the State Pension and sickness payments.
2. Class 4 will start to include access to contributory benefits
Those with profits between the Lower Profits Limit (£8,060 in 2015/16) and Upper Profits Limit (£42,385 in 15/16) will pay Class 4 contributions at 9%. This gives access to the contributory benefits, such as the State Pension and the new contributory Employment and Support Allowance (ESA), as well as Bereavement Benefit.
3. Some people will receive the benefits without contributing a penny
Those with profits between the Small Profits Limit (£5,965 in 16/17) and Lower Profits Limit will not have to pay contributions, but will be treated as if they have paid for the purposes of contributory benefits. This group appear to benefit the most from this change. They will not need to pay Class 4 but will be treated as if they have paid.
While this comes across as a good move for this category of taxpayers, there may be some initial costs as the self-employed, and small and micro-businesses need to familiarise themselves with the rules. Professional advice should be sought to ensure your contributions are correct and up-to-date. But reducing two areas of administration to one should mean simplification for these parties into the future. The main areas to focus on involve ensuring you have made all the necessary contributions needed to ensure access to all the relevant benefits, especially a full State Pension.
Hill Osborne offer a free one-hour consultation with one of the partners. Call to arrange yours and make sure your tax and NI are shipshape.