The government planned to get rid of Class 2 National Insurance Contributions (NICs) for self employed taxpayers with annual profits of more than £6,205 in April. After months of waiting, last week they announced that this change is not happening at all and Class 2 NICs are staying in place.
Why have they reversed their decision?
The government are concerned that abolishing Class 2 NICs will increase the complexity of the tax system and make the lowest self employed earners worse off. According to their figures, over 300,000 self employed taxpayers with profits under £6,000 make voluntary Class 2 NICs payments to safeguard their state pension. This currently costs them £2.95 per week. If the tax cut had gone ahead, they would be paying Class 4 NICs at £14.65.
Robert Jenrick, Treasury Minister, did not present this in the House of Commons, but issued a written statement to explain the government’s reasoning:
“A significant number of self-employed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the state pension rise substantially. 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. Furthermore, it has become clear that, to the extent that the government could address these concerns, the options identified introduce greater complexity to the tax system, undermining the original objective of the policy.”
Does everybody agree with the government’s U-turn?
The government’s decision is not accepted by everyone.
Mike Cherry, Chairman of the Federation of Small Businesses, points out that keeping Class 2 NICs payments as they are will “net the Treasury more than £350m annually in the three years to 2021”.
As reported by the BBC, he goes on to say:
“The self-employed community has been let down today, missing out on a promise to reduce their tax burden. This raises serious questions once again about the government’s commitment to supporting the self-employed. Class 2 NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up.”
The Shadow Chancellor, John McDonnell, echoes this sentiment with his comment:”This is yet another betrayal of the self-employed. These people are the engine of the economy and have been let down again, while giant corporations have seen their tax bills slashed.”
