One of the enduring mysteries of life in the UK why we have a tax that's still called national insurance, and why it's still so complicated. There are four different types, and two sub-categories for goodness sake - all with different rules.
When we cover NI in our finance for freelances or sole trader workshops, there's always bemusement in the room, even among highly intelligent people who've been paying it for years.
The reason it's complicated is because it's had numerous bits bolted on over the years as Chancellors have realised they can get more money out of us while saying they're not putting up income tax, even though NI is a kind of tax and it's usually based on income.
So NI has come to resemble a kind of steam punk traction engine with go-faster stripes - an interesting feat of engineering but not exactly fit for purpose.
But there's a small change coming that should benefit you if you're self-employed. It's a simplification in the way the Class 2 NI contribution is taken. At the moment Class 2 is calculated as a weekly amount (£2.75 in 2014-15), which you arrange to pay monthly or six monthly, separately from any other taxes.
The plan is to move Class 2 into the self-assessment process, i.e. put it in the tax return. This will remove the need for a separate process and may even help some self-employed people to remember to pay it. The timing was outlined in the 2014 Budget:
"These changes will have effect from April 2016, however customers will start to see the benefits after April 2015." (Nope. I'm not sure what that means either.)
Meanwhile another go-faster stripe is being added shortly in the form of a new temporary 'Class 3a' voluntary national insurance contribution. This could help people who have been self-employed (and others) to buy slightly more state pension if they are about to reach pensionable age. You can read about it on www.gov.uk.
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