Why abolish NI for the self employed?

[Houseplanter]

Why not for everyone?

Genuinely don't know why it's unfair to the self employed to pay it and Google won't tell me.

It looks like the plan is to eventually get rid of it all together. But they are removing for the self employed first.

Yes, but why self employed first?

How will pensions and health be funded without it?
Or are those things funded through general taxation already?

Because they're hoping White Van Man and his like will get back behind them rather than voting for Reform.

But the plan to end NI for SE is nonsensical. We pay our share of NI stamps to ensure we qualify for a state pension when we retire. If we no longer have to pay them, where does it leave our eligibility? Knowing the Tories, they'll use it as a loophole to stop us getting our pensions.

The NI isn't a separate pot of money that is only spent on pensions. When you pay your NI it all goes into one pot, and then there is an allocation for pensions. So scrapping it won't make any real difference as long as the money for pensions is found from somewhere else.

But as we all know, the current pension set-up is a giant Ponzi scheme so who knows how much longer it can stay propped up...

I think it is to cut down the number of people entitled to a state pension by the back door!

I wouldn't get too excited it's about £3.70 per week, hardly going to kick start the economy!<

Is there any detail about these proposals?

All I've found beyond RS saying it is this consultation report: https://www.gov.uk/government/consultations/consultation-on-abolishing-class-2-national-insurance-and-introducing-a-contributory-benefit-test-to-class-4-national-insurance-for-the-self-employed/the-abolition-of-class-2-national-insurance-introducing-a-benefit-test-into-class-4-national-insurance-for-the-self-employed but it was updated in 2018.

As I understand it, the above plan is actually worse off for many self-employed with low earnings. If you earn beneath the NI threshold, you are currently able to pay Class 2 contributions voluntarily to build up your NI record. The proposal replaces these with the much higher Class 3 contributions. If you earn little, you will have to pay much more to build up a state pension. Meanwhile, if you earn over the threshold but not enough to be actually taxed NI, you get 'treated as though you had paid NI', which I don't think is changing. So: earn too little, pay (and under these proposals: pay more), earn little, but sufficient: pay nothing.

Correct! This and double this

It feels like a decent chunk of money when you're self employed and pay it all at once, though.

As someone who is self employed I don't see how this would help me?

National insurance contributions pay towards schooling, the NHS, annual leave entitlement, statutory sick pay, maternity and paternity leave, and statutory pensions.

As someone who is self-employed, I have no eligibility towards annual leave, sick pay, or mat pay. That's why we pay lower amounts of NI than employed people—we take out less.

However, I still need to be able to access school for my child. I still need medical care when needed. I also want to be entitled to a state pension. If i'm not paying NI, how does this effect me later down the line?

As the PP said, this is clearly going to be a loophole that, in 30 years, if your SE, you won't be entitled to a state pension because we weren't entitled to pay due to this idiotic plan.

And people need to realise the only reason why the Tories would consider removing national insurance, is that:

• They would then force to get private medical insurance to access treatment
• They would privatise the NHS
• They would cut benefits
• They would push the age to qualify for the state pension so high that most people would die before that...

I am self-employed as well as employed part-time and that snake will never get my vote...

exactly this.

They aren't saving me money with this scheme.

They are preventing me from having access to state provision without making it clear that's what they are planning.

Yes I thought this. I was until recently self employed and DH is self employed, neither of us has an issue paying NI, I don't know why it should be stopped.
Not that the Tories are going to get in so really I don't know why I am giving any of their proposals headspace.

It is so they can say in 30 years time you are not entitled to a state pension. And idiots on forums like MN will say you should have known you would not get a state pension if you are not paying NI.

My partner is white van mama type self employed bloke, so are his friends. We don't talk politics as we have very different views but it wouldn't surprise me if they all vote reform. I think it's probably to try and win over that demographic of voters from reform.

Most of the self- employed people I know pay the absolute minimum NI contributions anyway, and take most of their income as dividends (less tax to pay), so they’re already paying much less into the communal pot than employees on PAYE.
Don’t agree with abolishing taxes for them and in fact I would propose that all income is properly taxed as income rather than this split of income, dividends, pensions etc,

I suspect you are right.

Certainly the constant lowering on NI seems to be an attempt to break the 'contract' bewteen this payment and having your basic health and pension needs taken care of by the state.

Once it is all seen to come out of one, big, vague pot governments are much more free to spend (or not spend) it as they wish.

The constant NI cuts are such a U Turn from the HSC levy that was Sunak's big baby just 18 months ago.

Class 2 NIC (Self employed) doesn't give the same range of state benefits as employed NIC, hence why it's always been cheaper and a fixed amount. It's a historical throwback from the old days of "buying a stamp" for your state pension. Time moved on with employed NIC, but didn't for self employed.

As to eligibility for state pension, we already have a system of "credits" being earned regardless of paying NIC, i.e. for carers, unemployed, part time workers paid under the threshold for paying NIC. Self employed can already "earn" a credit without paying NIC if they're low earners (just like low earning part time employees), so that will just be extended to give all self employed a "credit" (or stamp) towards state pension, presumably as long as their earnings are over a particular income threshold (just like employed part timers!).

Considering the class 2 NIC is only around £3-£4 per week, it probably costs more to administer and collect it, so is unlikely to cause much of a black hole in public sector finances as all the staff involved in the admin and collection can be redeployed to more useful/lucrative areas of HMRC such as tacking the black economy and illegal tax avoidance (i.e. VAT fraud, "cash in hand" employees not through the books, sole trader "cash in hand" jobs etc etc).

The total tax paid by a limited company owner is now very similar to the tax they'd pay if they were a sole trader. You have corporation tax on company profits, and then personal "dividend rate" tax on the dividend drawn, which together are pretty close to income tax and NIC on sole trader profits. I think you're a bit out of touch with recent changes.

It WAS certainly the case that the low salary/high dividend route saved a lot of tax (thanks to Gordon Brown's meddling that caused hundreds of thousands of sole traders like cleaners, window cleaners, joiners, car mechanics etc) to convert to limited companies, but over the last few years, that's been reversed. Nowadays, it's more likely a "one man" self employed would actually pay more tax as a limited company than a sole trader, hence quite a few of them converted back to being a sole trader and closing down their limited companies!!

The scrapping of S/E NIC will drive even more self employed to stop using the limited company option and return to the simpler sole trader method of operation as it will, in most cases, be cheaper from a total tax point of view than a limited company.