Call to let self-employed NIC changes bed in

Complex changes to National Insurance for the self-employed should be delayed to ensure the impact is fair and that those affected understand the implications, says LITRG.

The charity backs the end of Class 2, as it represents a simplification, but says changes to how it is paid and other potential tax changes to be tabled by the OTS, are enough reforms for now.

It said: “We urge the government to wait until the final recommendations are made by the Office of Tax Simplification (OTS)…. before it decides to press ahead with any more changes to self-employed NICs.”

The pause is also necessary because in light of Class 2 supposedly being stopped from April 2017, there is only a small window to consult, issue guidance and ensure people understand the changes.

“[The reforms] may be rushed through without adequate further consultation together with a lack of publicity and guidance for the people affected,” said the Low Incomes Tax Reform Group.

There is also the question of added cost for people who work for themselves. “Many self-employed people currently pay voluntary Class 2 NICs to protect their entitlement to contributory state benefits,” LITRG explained.

"While it is proposed that some on low incomes would be protected by the availability of NI credits, others would be required to pay Class 3 NICs instead which could result in a five-fold increase in the cost to them.”

Anthony Thomas, chair of LITRG, worries that such a hefty hike in costs could result in no contributions being paid, which may result in future reliance on means-tested state benefits.

He also believes that reform of Class 3 NICs (which are voluntary contributions) should be considered by the government because of the impact of the abolition of Class 2.

“It seems inequitable that… [a person who is] self-employed and contributing towards the UK economy is [potentially] expected to pay Class 3 contributions at the same rate as someone resident overseas”.

 

2nd March 2016

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