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Class 2 NICs moved into SA

19th Mar 2014
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The collection of Class 2 National Insurance Contributions (NICs) for the self-employed will be moved into self assessment, the Chancellor revealed this afternoon in his 2014 Budget.

The change will take effect from April 2016 and is expected to remove red tape for up to five million people, George Osborne said.

The simplification of Class 2 NICs comes as a welcome move, however rather than being a move towards an income tax and NICs merger, it relates to the collection rather than the calculation and operation of tax.

Rather than representing a first step towards amalgamation, BDO remuneration partner Philip Fisher pointed out that the Chancellor spoke of it as an OTS policy recommendation to “move the collection of Class 2 NICs into self-assessment, abolishing for 5m people this wholly unnecessary bureaucracy”.

“If this was the first step towards merging tax for the employed and self employed, that would be by far the most exciting part of the Budget,” said Fisher. “Where’s this earnings tax we heard so much about last week?”

Rebecca Beneyworth commented that political sensitivities probably constrained the Chancellor from moving towards full integration of NICs and income tax, but added: “This is an important administrative move that cuts out a layer of admin that didn’t need to be there.

“A swathe of people who didn’t pay Class 2 NICs - many of them because they simply forgot - won’t slip through the net because it’ll all be collected at the same time through self assessment.”

Alex John from TaxCalc, who sat on our panel of experts during our live Budget blog, also pointed out that the new measure will require changes to software to allow for this amendment.

“This is probably the biggest change TaxCalc will see due to this particular Budget but not one we have to consider for a while yet,” she added.

John Whiting and the OTS team also got a name check in the Chancellor’s speech:

“Thanks to the Office of Tax Simplification we have already cut burdens on administration – and I am grateful to Michael Jack, John Whiting and their team for their hard work,” Osborne said.

Replies (6)

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By anthonystorey
19th Mar 2014 17:21

Class 2 NICs moved into SA

It might make it easier, for those who qualify, to claim Small Earnings Exemption for class 2 NICs if it's part of the Self Assessment process. Other than that I can't see that it will cut down on red tape. Most people simply have it deducted automatically each month by direct debit with absolutely zero input required. Now presumably it will be another box to complete on the Tax Return and a bigger bill to pay on 31 January each year.  

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By DavidThrelfall
20th Mar 2014 10:48

I think it is a good idea to move Class 2 in with the rest of tax. Clearly direct debits can be missed and those paying on quarterly bill can forget to pay it and build up significant arrears that is not chased. Has anyone tried getting any sense out of the NIC office re Class 2 NIC I wrote to them a year ago about my NIC record with regard to Class 2 and received nothing and have been chasing them for months?

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By AndrewMichael
20th Mar 2014 14:03

cLASS 2 nic

A great idea

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By the_Poacher
21st Mar 2014 09:13

Missed opportunity?

Although this is a welcome cost saving initiative, It's about time that the Chancellor merged employee and self-employed NI in with mainstream income tax and make sure the extra was charged on dividends from close companies.  This would reduce the scope and value of avoidance.

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By johnjenkins
25th Mar 2014 13:58

When you get down to it

why shouldn't the self employed, employed and employers all pay the same rate of tax and nic. It's all profit or wages/salary.

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By cjfrisby
25th Mar 2014 16:22

"Registering" as self-employed ought to become redundant

Why is it necessary to 'register' as self-employed, as a distinctly separate exercise from from complying with the normal rules of Self Assessment?

The necessity of making ongoing Class 2 NI payments has previously been cited as the justification. With these being moved to the Self Assessment process, surely the requirement to register within three months can be dropped (and that *would* be cut to red tape).

If not, why not?


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