The abolition of class 2 NIC was announced in the 2015 Budget. From 6 April 2018 the rights to state benefits currently obtained by paying class 2 NIC will be transferred to class 4, thus simplifying NIC for the self-employed.
This proposal was fully consulted on from December 2015 to February 2016. A number of responders pointed out that low-earners would be disadvantaged as they would not be able to pay class 2 NIC on a voluntary basis, although class 3 NIC would remain available. Individuals who are not resident in the UK can’t pay class 3 NIC.
There will be a system of NI credits provided for no payment where the individual has profits between the current class 2 threshold (£6,025) and the higher class 4 threshold (£8,614).
However, late on Thursday 2 November the Government announced that the changes to class 2 and 4 NIC would not be made until April 2019. The reason given for the one-year delay is to allow for more consultation on the impacts for low earners.
A secondary reason, not declared, could be that HMRC is finding it difficult to merge the two separate computer systems which deal with NIC and income tax for the self-employed. The NIC payment records will have to interact with the DWP systems to allow state benefits to be paid based on class 4 contributions, not class 2. The merger of classes 2 and 4 NI will also require large chunks of the state benefits legislation to be rewritten.
It appears that the pressures on the civil service to amend legislation in other areas, and to revise HMRC’s computer systems to prepare for Brexit, are having a knock-on effect on the tax system.