Traditionally self-employed individuals paid their Class 2 National Insurance contributions via six monthly bills or regular direct debits. If an individual’s profits were, or were expected to be below the small earnings threshold they could apply for the small earnings exception.
The Office of Tax Simplification recommended that the Government review the way National insurance is collected for the self-employed, in order to make it simpler, more straight forward and to reduce the administration burden.
Following the review, it was decided that Class 2 National Insurance will be collected under the self assessment system in the same way that Class 4 National Insurance is currently collected.
What does this mean for me?
If you were paying your contributions by direct debit you may have noticed that your last payment was taken on 10 July 2015.
Your liability to Class 2 will be calculated at the end of the tax year alongside the preparation of your self assessment tax return and any amounts due will become payable the 31 January following.
For example, your liability for the 2015/16 tax year will be calculated when your tax return is prepared and will be payable alongside your Income Tax and Class 4 National Insurance on or before 31 January 2017.
The amount of Class 2 National Insurance due will still be calculated at a flat rate (2016/17 – £2.80 per week) with reference to how many weeks of self employment the individual has undertaken during the year.
Those with no profits chargeable to tax or profits below the new ‘Small Profits Threshold’ – £5965 2016/17 (which replaces the Small Earnings Exception) will no longer have to apply in advance for an exception from paying Class 2 National Insurance, as liability will not automatically arise.
However, in some cases you may still want to make payments voluntarily to retain your rights to certain benefits such as Employment and Support Allowance, Maternity Allowance, Jobseekers Allowance and your State Pension.
The contribution criteria for claiming each of these benefits is different therefore if it may be likely that you will need to claim any of these benefits in the near future and you are not automatically liable to make class 2 contributions please contact a member of the Tax Department to discuss voluntary contributions.
If you have gaps in your National Insurance record you may not be able to claim your full state pension when it comes to retirement.
If you would like to check for any gaps in your national insurance record you can do that here: https://online.hmrc.gov.uk/shortforms/form/NIStatement
Spreading the cost
For those that would like to continue to spread the cost of their Class 2 National Insurance over the year HM Revenue and Customs have proposed that they set up a ‘Budget Payment Plan’, to make regular payments in advance, when doing this it is important to specify that the payment is for Class 2 National Insurance otherwise HM Revenue and Customs will set it against your self assessment record. Information how to set up a budget payment plan can be found here: https://www.gov.uk/pay-self-assessment-tax-bill/budget-payment-plan