The Chancellor announced plans last year to reform how Class 2 National Insurance Contributions will be collected. Class 2 National Insurance will still be payable by the self-employed but instead of paying it weekly or monthly by direct debit the payment will be calculated along with your Class 4 NIC and income tax when you file your Self-Assessment Tax Return. That way your tax can be collected together at the same time. This change takes place from April onwards with the last monthly/quarterly direct debit payments collected by 10 July 2015. Please ensure that no Class 2 contributions are taken from your bank account by direct debit after this date.
Class 2 National Insurance is paid by the self-employed. It does not apply if your earnings are through PAYE or you receive dividends.
Anyone holding a Small Earnings Exception (SEE) Certificate will no longer need to renew it. In fact the certificate will cease to be valid from April 2015 even if it ends at a later date. You don’t need to do anything because of this change. HMRC will automatically calculate whether you need to pay any Class 2 contributions when you file your Tax Return.
Class 2 National Insurance to be abolished?
Going a step further in his recent budget, George Osborne announced his intention to scrap Class 2 NIC altogether for the self-employed. Much has been made in the press of the Chancellor’s claim to ‘abolish’ Class 2 National Insurance, but the reality is that the proposed changes are still subject to consultation at the end of 2015 and may be delayed depending on who wins the election in May. Abolishing the tax will bring a saving of £143 a year for the self-employed, however the upcoming reform of Class 4 National Insurance may cancel this out. The main benefit will be the easier administration for many self-employed people.
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