Class 2 NIC Scrappage
If you can hear us over all the screaming coming from every side, HMRC’s got an important piece of non-news for you. Remember when they told us that they were going to bump up Class 4 NICs for the self-employed to make things fairer – and then a few days later said they weren’t? Well, it took a little longer this time, but they’ve just quietly done the same thing for their Class 2 abolition proposals.
The original idea was apparently to level the playing field between employed and self-employed people. However, since self-employment doesn’t come with all the same rights and benefits employment does, a lot of people were upset when it was announced that Class 4 NICs would be going up. On top of that, the move crossed the “tax lock” line the government had set itself back in 2015. In any case, after a couple of days the idea was dropped. As for Class 2 NICs, the plan was apparently still to scrap them at some point, but now that’s not going to happen either.
While Class 4 NICs are a tax on self-employment profits, Class 2 is a flat weekly charge most self-employed people face automatically. It’s slightly clunky, but overall it means paying lower National Insurance than employed people. That’s the point that’s causing arguments right now. The system as it stands encourages employers to take on self-employed workers, since you don’t pay employer NICs for them and they come with fewer strings attached. The last 10 years have seen a big bump in self-employment numbers – and not all of it is completely within the rules. False self-employment - where people who really should be employees are paid like contractors - really bothers HMRC. They’re going to great lengths to stamp it out, and a lot of genuinely self-employed people are getting caught up in the same net.
The waters here get pretty murky, particularly with so many people thrashing around in them looking for clarity. Some business voices describe the gap between NICs for employed and self-employed workers as “unsustainably large”. They worry that tax treatment is becoming a key deciding factor in how people choose to work. For people paying Class 2 NICs, the abolition would have meant an extra £150 a year, so clearly a few hackles are raising now. Contractor insurer Qdos, for one, accused the government of “removing the financial benefits of working independently.”
There’s some interesting rumbling under all this, though – and it could potentially put the whole messy situation into a new light. The Low Incomes Tax Reform Group is very much against Class 2 payments, but it thinks scrapping them wouldn’t be enough to fix the problems in the system. Instead, LITRG would prefer to see a much wider reaching and “holistic” approach, rather tinkering around with individual rules, rates and thresholds. Whether or not that top-to-bottom review ever materialises, of course, remains to be seen.
National Insurance and employment status are large and dangerous areas for many people and businesses. As the taxman continues to clamp down on false self-employment, freelancers and contractors are constantly feeling the ground rules shifting under their feet. Whether you’re worried, angry or just confused by it all, talk to RIFT. We’re always here for you, and no one tackles the taxman better.