Class 2 Voluntary Contributions
Although the self-employed heaved a sigh of relief when the Chancellor reversed his decision to raise the rate of Class 4 NIC recently, other changes in the structure of National Insurance will give cause for concern, particularly for those with low earnings.
The abolition of the self-employed stamp (Class 2 NIC) from April 2018 means those who are currently below the Small Earnings Exemption and have been paying voluntary Class 2 contributions in order to secure contributory benefits will no longer be able to do so. From that date they will have to pay Class 3 voluntary contributions which is currently £14.10 per week, compared to the Class 2 amount of £2.80 they are currently contributing. In addition, the special rates for share fishermen (currently £3.45) and volunteer development workers (£5.60) will also be abolished, so they too will have to pay the higher Class 3 amount to maintain their contributions.
The situation is further complicated as in the past those with income below the Class 2 limit had to opt out of paying the stamp by applying for exemption, whereas now low earners have to opt in if they wish to make contributions – a fact many may not have been aware of, and may give rise to gaps in their records.
You can check your Class 2 record by logging onto your personal tax account at HMRC on-line, by post or by phone – details can be found here. If you have gaps in your contributions you can now backdate your Class 2 contributions for up to 6 years but you will need to do so before Class 2 is fully abolished. You need 35 years of contributions paid or credited to be entitled to the full state pension.
If you would like to discuss your situation with one of the team at Green & Co, please contact us on 01633 871122.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.