Abolition of Class 2 NICs

Abolition of Class 2 NICs from April 2018 is one small step towards simplifying the system for the self-employed. Class 4 NICs will also be reformed to include a new threshold, the small profits limit (SPL). The amount of the SPL  is yet to be confirmed for the 2018/19 tax year but is expected to be around £6,025. Until now the self-employed have paid Class 2 NICs at a weekly contribution rate of £2.80 per week in 2016/17, rising to £2.85 per week from April 2017 and offered access to certain contributory benefits such as contribution-based employment and support allowance, basic state pension and bereavement benefits.

Class 4 NICs are paid by the self-employed on profits above the Lower Profits Limit (LPL). 2016/17 contributions are payable at the rate of 9% on profits between £8,060 (the LPL) and the Upper Profits Limit (UPL) of £43,000. Contributions are then due at the rate of 2% on profits above the UPL. In 2017/18 the LPL will be £8,164 and the UPL will be £45,000.

OnceClass 2 NICs are abolished from April 2018, anyone self-employed and with profits between the SPL and the LPL will not be liable to pay Class 4 contributions, but they will be treated as if they have paid Class 4 NICs for the purpose of access to certain benefits. Those with profits at or above the Class 4 LPL will gain access to the new state pension, employment and support allowance (ESA) and bereavement benefit. Those with profits above the LPL will continue to pay Class 4 contributions.

There have been special arrangements that allow volunteer development workers to pay special rates of Class 2 NICs (VDWs) to obtain access to a wider range of benefits than currently available through Class 2, and they will also cease from April 2018. Class 3 contributions, can still be paid voluntarily to protect entitlement to the state pension and bereavement benefit, and will be expanded from April 2018, to give access to the standard rate of Maternity Allowance (MA) and contributory ESA for the self-employed. Rates of Class 3 NICs are £14.10 per week for 2016/17 rising to £14.25 in 2017/18.