As part of the Governments's overhaul of the tax system, HM Revenue and Customs (HMRC) recently consulted on proposals designed to simplify the collection of Class 4 (self-employed) National Insurance Contributions (NICs) for the more than four million self-employed people in the UK.
The need for change has been identified because of the increase in numbers of people who have intermittent self-employment, work part time or have more than one job. Such people face complexities in correctly dealing with their NIC payments, especially where they also have employments, when their NIC liability as an employee can affect their liability under self-employment.
Accordingly, the Government is also considering whether collecting Class 2 NICs through the Self Assessment system might better suit current working patterns and make for a simpler system.
The proposals may represent the first step towards the much-touted integration of the Income Tax and NIC regimes. In particular, Class 4 NICs, which are paid by people who are self-employed depending on the level of profits, do not ‘buy’ the payee any benefits and are widely regarded as Income Tax by another name.
HMRC have identified two further potential areas for simplification as follows:
- Complete abolition of the Small Earnings Exception (SEE) process and removal of Class 2 liability from self-employed people with profits below the SEE limit; and
- Alignment of the Class 2 and Class 4 rules.