The Treasury plans to abolish Class 2 contributions from April 2019, this affects anyone who is self employed and currently pays Class 2 and Class 4 contributions.


If a self employed person’s profits equal or exceed the Small Profits Threshold which is currently £6,205 for 2018/19 Class 2 NIC is due at £2.95 per week, this is paid annually. Therefore, there will be a saving of £153.40 per year.


Currently Class 4 NIC contributions are taxed at 9% are paid on net profits between the Lower Profits Limit which is £8,424 for 2018/19 and Upper Profits Limit which is currently £46,350. Any profits above this are taxed at 2%.


With the abolishment of the Class 2 NIC’s a new contributory benefit test for the self employed is being introduced. Income levels will be tested based on annual profits, and individuals will accrue qualifying years for entitlement to the State Pension and other benefits such as Bereavement Support, Employment Support and Maternity Allowance, if they pass the test.


Self employed with profits below the Small Profit Threshold will need to accrue qualifying years for benefit entitlement by paying Class 3 Voluntary NIC’s, which will cost £761.80 a year.


A self employed person whose profit is below the Small Profit Threshold but also has employment earnings may be able to accrue qualifying years for the benefit entitlement via Class 1 NIC’s paid through employee’s NIC.


Self employed people earning profits between the Small Profit Threshold and Lower Profits Limit which is currently £8,424 will no longer pay any NIC’s but will build entitlement to contributory benefits.