Changes for the self-employed
Many students are setting up their own businesses and becoming self-employed while they are studying. The way Class 2 National Insurance contributions (NIC) are collected is changing and this will affect all those who are self-employed.
From April 2015, Class 2 NIC will be collected along with other self assessment tax liabilities on 31 January following the year of assessment. Thus, Class 2 NIC for 2015/16 will be collected on 31 January 2017.
This is a major change for many people as they have been used to paying their Class 2 NIC by either direct debit (on a monthly or quarterly basis) or by direct billing by HMRC (six monthly).
Existing six monthly bills and direct debit payments will both cease automatically during 2015, with the last payments being collected as follows:
- Last monthly direct debit payment collected 10 July 2015
- Last quarterly direct debit payment collected 10 July 2015
- Last 6 monthly bill due 10 July 2015.
In the meantime, no new applications are being accepted to pay Class 2 NIC by direct debit.
Impact of the changes on state benefits claimants
For those who might have to rely on their Class 2 NIC for payment of certain benefits, for example Employment and Support Allowance or Maternity Allowance, it may be necessary to pay contributions earlier than would be required for annual self assessment liabilities. This is likely to be by a lump sum payment in advance of accessing the benefits.
For those making claims to Universal Credit, it may make sense to continue to pay these liabilities monthly. Once we have details of monthly payment options, we will post them on our website.
Those who have existing claims to be excepted from Class 2, or have it deferred
Where a self-employed person has profits falling below an amount known as the Small Earnings Exception (£5,885 for the 2014/15 tax year), it is not necessary to pay Class 2 NIC although many individuals do so to preserve entitlement to state benefits. Where a self-employed person wishes to take advantage of this Exception, they currently need to apply for a deferment certificate; under the new regime this will no longer be the case as the exception will apply unless they opt to pay the contributions.
Where an individual is both employed and self-employed, they may apply to defer payment of their Class 2 NIC. This will no longer be necessary under the new system.
Foster and shared lives carers
Some people ‘opt in’ to paying Class 2 NIC, such as foster and shared lives carers who qualify for certain income tax exemptions but who wish to maintain contributions for state benefits entitlement. For them, the new system will mean having to pay those contributions without any bill being issued. At the moment we have little information of the payment options that will be available.
Once the legislation is finalised, our website will be updated to reflect the various changes.
For more information on self-employment and tax see our Working section.