MSE News

Tax cut plans for self-employed abandoned

The Government has abandoned plans to scrap 'class 2' national insurance contributions – meaning around three million self-employed workers will lose out on a tax cut of over £150 per year.

The planned tax cut was initially delayed until April 2019, but has now been abandoned all together, reportedly saving the Treasury up to £360 million a year. 

Class 2 national insurance contributions (NICs) are made by self-employed workers who earn above £6,025/year. The £2.95/week payments mean they qualify for a basic state pension and benefits such as maternity allowance and contribution-based employment and support allowance.

While the tax cut would have benefited those earning above the threshold, self-employed workers earning less than the threshold would not have been able to voluntarily pay class 2 NICs to qualify for the state pension and other benefits. They would have had to pay class 3 NICs instead, which would cost £761.80/yr instead of almost £153.40/yr – so an extra £608.40/yr. 

How will the decision to keep class 2 NICs affect me?

The decision to scrap the plans won't have an immediate effect if you earn above the £6,025/yr threshold, as you would have been expecting to pay the contributions worth £153.40/yr until April 2019. 

However, the decision means you will miss out on £153.40 in promised savings per year from April 2019 onwards.

If you earn less than £6,025/yr, there will be no change so you can still make voluntary class 2 NIC payments if you wish. Doing so can help protect your eligibility for some state benefits, such as maternity allowance, as they're based on a certain amount of class 2 NIC payments over a defined period.

What does the Government say?

Treasury Minister Robert Jenrick said in a written statement to MPs: "Having listened to those likely to be affected by this change we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society."