Do you know about National Insurance changes for the Self-Employed?
You may be one of the fast growing army of the self-employed who’re responsible for managing your tax payments including National Insurance payments. But did you know, as of July 2015, HMRC stopped taking monthly and quarterly Class 2 payments from your business bank account? In fact they have stopped Class 2 payments altogether.
Not everyone is aware of the change to Class 2 National Insurance. Many of the self-employed could easily miss the relatively small direct debits covering National Insurance payments have stopped. Only to get a nasty surprise when they’re completing their Self-Assessment form and are expected to pay out a lump sum that they’ve not accounted for or thought they had already paid.
Why end Class 2 National Insurance?
As there’s almost £4.5 million self-employed in the UK it makes more sense for HMRC to streamline the collection process. Instead of HMRC tracking and collecting a mixture of Class 2 N.I. and Class 4 N.I annually, the Class 2 NI quarterly and monthly have been replaced with just two payments a year. This is easier and more cost effective for HMRC to manage.
It will reduce the hassle for the self-employed too, as you now only have to manage two payments at the same time every year, in July and January.
Who is affected by the end of Class 2 National Insurance?
Only the self-employed with profits over £5,965 need to pay Class 2. Class 4 applies to the self employed with profits between £8,060 and £42,385 and is due at 9% and 2% on profits over £42,385. The government is looking at abolishing Class 2 and merging it with Class 4.
If your profits are below the threshold I’d suggest it’s still a good idea to protect your state pension allowance and maintain your National Insurance payments.
So remember to squirrel away an extra £140 every year to cover your minimum payments in July and January.
Do you think it’s simpler? I would be keen to hear what you think of the changes to National Insurance so contact me on Twitter or LinkedIn.
If you know someone affected by the changes to National Insurance please do share this blog.