Your Tax Shop can confirm that Class 2 NIC will be abolished from 6th April 2019. While Class 2 NIC is being abolished, changes will be made to Class 4 NIC which may be of assistance – but not in all cases. There is no legislation yet, so the following is based on the information available but may be subject to change.

Class 2 NIC currently gives entitlement to State Pension, Maternity Allowance, Bereavement Benefits and the Employment & Support Allowance. From 6 April 2019, payment of Class 4 NIC will give entitlement to these benefits.
For 2018/19, Class 2 NIC is payable at £2.95pw or £153.40pa whereas Class 3 is payable at £14.65pw or £761.80pa. Class 2 NIC is payable where profits exceed the “Small Profit Threshold” of £6,205 but the legislation allows the self-employed with profits below this to pay Class 2 NIC voluntarily.

From 2019/20 it has been announced that Class 2 NIC will be abolished but that for those self-employed persons with profits that fall between a new Class 4 NIC Small Profits Limit and the Class 4 NIC Lower Profits Limit will be deemed to have paid Class 4 NIC thereby giving the person a qualifying year for benefit entitlement purposes. The Small Profits Limit will be set at 52 weeks times the Class 1 NIC Lower Earnings Limit – currently £116pw or £6,032pa.

Using 2018/19 rates, as an illustration, this gives the following effects:

Profits below £6,032 No Class 4 NIC Payable
Profits between £6032 and £8,423 Class 4 NIC deemed to have been paid
Profits between £8,424 and £46,350 Class 4 NIC payable @ 9%
Excess of Profits over £46,350 Class 4 NIC payable @ 2%

The 2019/20 rates will of course differ, but the principle involved is clear.

As the question points out, it is not only those self-employed individuals with continuously low profits that will be affected but also those traders who occasionally make losses or whose profits occasionally fall below the new Small Profits Limit.

Should you need any further information regarding NIC’s please contact one of the team at Your Tax Shop, based in Ashton-Under-Lyne on 0161 339 5689