The Low Incomes Tax Reform Group (LITRG) has urged the government to delay the proposed changes to self-employed NIC contributions which could be introduced as early as April 2017.

The self-employed currently accrue entitlement to certain state benefits, such as maternity allowance and the state pension, through payment of class 2 NIC contributions of £2.80 per week.  Those with profits under the threshold (£5,965 for 2015/16) can make voluntary contributions of the same amount to retain their entitlements.

HMRC are proposing to abolish class 2 NIC altogether, and instead the self-employed will accrue benefit entitlements through payment of class 4 NIC. 

The class 4 threshold is higher than class 2 (£8,060 for 2015/16) and to counter this HMRC proposes to introduce a lower threshold in line with the existing class 2 threshold which would allow the entitlement to benefits to accrue without the requirement to make a contribution. 

This would be similar to the way class 1 NIC works for employees, with benefit entitlement accruing once earnings reach £112 per week but NIC contributions only being paid for earnings over £156 per week.

LITRG is concerned that self-employed individuals with lower profits might not appreciate the impact that the abolition of class 2 NIC could have on their entitlement to benefits.  Once class 2 is abolished those who voluntarily make contributions will have the option to make class 3 voluntary contributions instead, but these are more expensive and an April 2017 introduction date leaves little time for publicity and issuing guidance as to the impact.

The self-employed have only recently seen a major change to the administration of class 2 NIC from April 2015 with the alignment of its payment with class 4 and the self-assessment payment deadline of 31 January.  This has already caused difficulties for some who have found that they must make early payments of class 2 NIC prior to 31 January in order to receive benefits. 

HMRC’s consultation The abolition of Class 2 National Insurance: Introducing a benefit test into Class 4 National Insurance for the self-employed closed on 24 February 2016.

For more detail about LITRG’s concerns see their consultation response document.