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How should one handle the changes to Class 2 NI?

Class 2 NI disappearing from 6 April 2019

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Paying class 2 NI at about £150 per year gives access to a qualifying year for state pension. It has been possible to pay voluntary Class 2 NI where self-employed earnings are low (below the Class 2 small earnings exception).

This option will no longer be available for 2019-20 where S-E earnings are below £6,025.

In order to obtain a qualifying year Class 3 NI can be paid, which is exactly five times the cost of Class 2 NI.

The self-employed with low earnings might be tempted to omit some of their business expenses in order to clear the small earnings threshold and thus avoid having to purchase a qualifying year at five times the price.

This poses an interesting philosophical question as to whether omitting business expenses is non-compliance with tax rules. Also in terms of a tax audit, it is rather more difficult to search for understated vouchers rather than overstated vouchers. Does one ask to see the omitted vouchers folder?

Replies (6)

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By swatt66
26th Jan 2018 16:58

Hide the vouchers.

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By SteveRA
26th Jan 2018 21:28

The abolition of class 2 NIC has been delayed by a year so no problem will arise in 18/19. It is 19/20 that will see the change.

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By swatt66
26th Jan 2018 22:36

True, I have now corrected the tax year to 2019/20.
I guess many on such low earnings will not be getting financial advice and will not be aware of this change.

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RLI
By lionofludesch
27th Jan 2018 09:53

In all fairness, £700 is still decent value for money, despite the price hike.

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By zebaa
27th Jan 2018 10:47

Your 750 will give an income of 3,454 by my back-of-fag-packet, assuming this takes you to 35 years contributions. Where it looks more expensive however is when you have a little more than the minimum contributions.
As ever, individuals should consider their circumstances and the fact that government can change the rules.

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Replying to zebaa:
RLI
By lionofludesch
27th Jan 2018 11:21

Assuming it's one of your 35 years, will it not buy you a pension of 1/35 of the state pension of just under £160 a week?

That's - say - £4.50 a week, so you'd need to collect for 167 weeks or just over three years.

If you don't make it, will you complain ? I guess not.

Obviously at Class 2 rates, that 3 years was more like 8 months.

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