Contributed by ACCA, in their own words

Class 2 abolition, the previously announced cashback for business and a new class of voluntary contribution means a shaking up of national insurance.

Simplifying self-employed NICs

The Chancellor announced that, following consultation, from April 2016 class 2 national insurance contributions (NICs) for the self-employed will be collected/incorporated and collected through self-assessment. This will see the end of class 2 NICs at a flat rate of £2.75 a week (2014/15). The consultation will obviously look at the exemptions available, including where earnings are low – currently below £5,885 (2014/15).   

£2,000 set-off

All business and charities will be eligible for a new £2,000 Employment Allowance to set off against their employers’ (secondary) NICs. The Employment Allowance is not available for:

  • anyone who employs someone for personal, household or domestic affairs – for example, a nanny, au pair, chauffeur, gardener or care support worker
  • employers already claiming through a connected business or charity
  • public authorities
  • employers who carry out functions either wholly or mainly of a public nature, unless they have charitable status.

Service companies are not able to claim in respect of deemed payments of employment income.

Your software, if it has the ability to submit an Employment Payment Summary (EPS), should require you to specify if you wish to claim the Employment Allowance and you should select the appropriate response. Alternatively, the Employment Allowance can be claimed through the 2014/15 version of the Basic PAYE Tools.

Employers exempt from filing online can claim the Employment Allowance by using the paper EPS from April 2014. Instructions for this have been included in the guidance provided to all exempt employers.

The Employment Allowance will be offset against payments of employer class 1 NICs when they are due to be paid, until the full £2,000 Employment Allowance is used up or the tax year ends, whichever is soonest.

The Employment Allowance will be delivered through standard payroll software and HMRC’s real time information (RTI) system. It is intended that the system will be simple to administer, with employers notifying their eligibility through normal PAYE processes. 

Voluntary national insurance contributions (VNICs): class 3a

The Budget confirms further details about the new class of VNICs, which enable those who reach state pension age before 6 April 2016 to top up their additional state pension record. The scheme will be open from October 2015 for 18 months. The pricing will be set at an actuarially fair rate and the maximum additional amount available will be £25 a week. The Department for Work and Pensions will set out full details in due course.

This will help pensioners with savings who want to boost their state pension income in a way that protects them from price inflation and provides them with an income for life. It could particularly benefit those with gaps in their additional state pension record, such as the self-employed and women who have taken time out from work to raise children.