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Class 4 National Insurance contributions
Got self-employed client who has paid Class 4 contributions (required by law) and no Class 2s. Class 4 contributions do not provide entitlement to any benefits at all, so was wondering where they originally came from? Just need to satisfy my curioisity!
Class 4 is in effect another tax - at a guess some Chancellor some time in the past managed to work it into a budget!
But I don’t follow how he can have failed to pay Class 2. I thought all self-emplpyed people had to pay it unless on a very low income which exempted them (& if he is paying Class 4 he certainly won’t be on that low an income).
“Class 4 is in effect another tax - at a guess some Chancellor some time in the past managed to work it into a budget!”
Brought in either by the National Insurance Act 1911 or the National Insurance Act 1946. In other words either by the Liberals or Labour. Understandable really as it is a tax on profits.
Many thanks… he’s coming in this morning so can let him know that it’s just another tax.
Re. Derek’s point, we tend to find that self-employed people stop paying their Class 2s as soon as their business starts to go down the pan, despite the contributions being such a very small amount amount.
There is an urban myth that paying NI results in nothing for the self-employed (compounded by the Class 4 issue) largley based on the fact that contrib. JSA is not payable. No one thinks about sickness or income protection ideas. Interestingly, the Daily Telegraph recently reported that we have one of the lowest sickness benefit payment rates (worse even than the USA). Nothing suprises me.
I too was curious but all i can find are 2 pages at HMRC in which the first year of Class 4 contributions is listed as 1975/76. The maximum payable that year was £160.
Income Tax and NIC registration was completely separate until about 15 years ago although I think the self employed were generally aware that they should pay their weekly ‘stamp’. Often it was part time self employed who also paid Class 1 who did not know they should register.
Historically, governments deliberately taxed the self employed less. The maximum Class 4 payable roughly trebled to £1k from 1982-1996 and again to £3k p/a since 1997.
I have had some success in appealing against backdated Class 2 assessments and there appears to be a light-touch approach once an appeal is made. If you can get hold of the profit figures, there may be a case for back-dated an Exception Certificate.