On 9 December 2015 the UK issued a consultation document proposing changes to Class 2 and Class 4 national insurance contributions. These are payments made by self-employed people in respect of entitlement social security benefits including the state pension and the Class 2 contributions help individuals to build a contributory benefit entitlement.
The Class 2 contributions are paid at a weekly flat rate, currently GBP 2.80 per week, while the Class 4 contributions are calculated as 9% of profits above a specified threshold. Class 4 contributions do not provide any entitlement to contributory benefits but were introduced to ensure a fair share of the costs of providing these benefits was paid by self employed people. Both Class 2 and Class 4 contributions are now collected annually under self-assessment.
The UK government now proposes the abolition of Class 2 contributions and instead the introduction of a new contributory benefit test for the self employed into Class 4 contributions. Individuals with profits above a certain threshold could accrue qualifying years for entitlement to the UK state pension and meet contributions tests for other contributory benefits.
Responses to the consultation are invited by 24 February 2016. The changes to national insurance contributions would not be implemented until April 2017 at the earliest.
