The Treasury has announced that it will continue to charge Class 2 National Insurance Contributions (NICs) despite promising to scrap the tax from April 2018.
It was argued that the estimated 300,000 low-earning self-employed workers would be forced to pay more to access the same pension rights as other higher-earners who work for themselves.
If the scrap was to go ahead, they would have been moved on to Class 3 NICs, meaning a weekly increase from £2.95 to £14.65.
Class 2 NICs are currently paid by self-employed people who earn more than £6,205 in profits. A cut was estimated to save workers an average of around £150 each per year.
In a statement, the Treasury Minister Robert Jenrick said it had “become clear” that scrapping Class 2 Contributions would have had an unbalanced effect on low-earners.
“Having listened to those likely to be affected by this change, we have concluded that it would not be right to proceed during this Parliament, given the negative impacts it could have on some of the lowest earning in our society,” he said.
He added, however, that the Government remains committed to simplifying the tax system and will keep this issue “under review”.
Commenting on the announcement, Federation of Small Businesses (FSB) National Chairman Mike Cherry said, in disagreement, that the Government’s commitment to supporting the self-employed has in fact been tested with today’s news.
“The move is extremely disappointing and flies in the face of tax simplification,” he said.
“Class II NICs is a regressive levy that indiscriminately hits sole traders and makes life even tougher for those who are hard-up. Once you’ve reached a minimal income, there’s no tapering or means testing in place at all.”
The FSB suggested that rather than hitting more than three million self-employed people with this levy, the Treasury should have done more to protect low-earners and maintain their current rate of pension contributions.
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