Sole Traders will pay Class 2 NI for another year

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Hot off the presses we hear that Class 2 National Insurance will NOT be abolished in April 2018 as planned, but will continue for another year.

Anyone who’s been on our Finance for Freelancers course will understand why this was likely.

Sole Traders currently pay two types of NI: Class 2 at a flat £2.85 per week; and Class 4 which is like an extra income tax of 9% on profits above around £8,000.

There were two problems with the proposal to abolish Class 2.

  1. It would leave low earning sole traders with no national insurance record – as low earners wouldn’t be paying Class 4 either.
  2. It would leave the Treasury £148 per year worse off for every sole trader – and there are over five million of them. You can do the sums yourself.

The government says it will indeed abolish Class 2, but not until April 2019.

One obvious option would be to get rid of Class 2 and change the way Class 4 works, while increasing it slightly. But the Chancellor tried this in March, and it all went horribly wrong.

So they have an extra year to sort this out.

Slightly worried that George Osborne can’t see the political problem that he originally caused in his 2016 budget announcement. His Class 2 “tax cut” resulted in a reduction in pension and benefits entitlements for the lowest earning self-employed.

Posted on 03 November 2017

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