Class 2 NIC changes
What are NIC’s ?
“National Insurance Contributions” (NIC’s) contributes towards your state pension and certain other benefits; the amount of contributions you make during your working lifetime affects the level of pension you receive.
If you are employed on a payroll, you pay Class 1 NIC which get taken automatically via PAYE. Class 2 and Class 4 national insurance (NIC’s) allow self employed people to make the necessary contributions.
The current profit threshold level for Class 2 NIC is £5,965 per year (that is, for the 2016-2017 financial year. This tends to change each year)
If you are self employed and earn over £8,060 (for 2016-17) then you also pay annual Class 4 NIC’s at 9% as well).
What is happening ?
Currently Class 2 NIC’s are billed six monthly or taken via a monthly direct debit. Both of these methods will be replaced with a single annual calculation as part of your self assessment tax return.
The self assessment will work out how much you need to pay for the year, based on the information you provide in your self assessment return.
Who will it affect?
Anyone who is registered as self employed, whether above or below the threshold for Class 2 NIC’s.
When will they stop ?
Although the change comes into effect from April 2015, the payments are collected with a 4 month lag, so your last direct debit payment under the old system will be due on 10 July 2015. This will cover the period to 5th April 2015, so there will be no Class 2 NIC’s in your 2014-15 self assessment return.
Do I need to do anything ?
The six monthly bills and direct debits will stop automatically, so as long as your payments are all up to date, you don’t need to do anything.
The Class 2 NIC’s due will be calculated automatically in your 2016-17 self assessment tax return, which will be due for submission and payment in January 2017.
ANNOUNCEMENT – NEW DEVELOPMENTS: 2016 BUDGET…
The UK Government will do away with Class 2 NIC’s. The current rule of paying £2.80 per week if you earn more than £5,965 PROFIT per year will be scrapped from April 2018.
Please contact us of you need any help.