The Isle of Man Treasury has launched a consultation which proposes improvements to the collection of National Insurance contributions, to bring the Income Tax and National Insurance systems into alignment where possible.
As a first step in this process, the Income Tax Division is consulting on changes to the payment of Class 2 National Insurance
contributions.
The consultation document proposes to move Class 2 contributions to one payment per year and
proposes that the level at which a person becomes liable to pay Class 2 contributions
is raised to match the Class 4 contributions lower profit limit.
Before April 2010, Classes 1, 2 and 3 National Insurance Contributions
were collected by the then Department of Health & Social Security, and Class
4 Contributions were collected by the Income Tax Division.
Following the restructuring of the government in 2010, the Division became responsible
for the collection of all classes of Contributions.
Class 2 Contributions are paid by self-employed earners. In practice, this
generally means someone who has their own business. In addition to Class 2 Contributions,
Class 4 Contributions are payable at a set percentage rate on profits from self-employment
which exceed a lower limit of GBP5,980 (USD9,304) per year.
The document explains that the government considers the current method of collecting
Class 2 Contributions is, for such small amounts (GBP2.50 per week, or GBP130
per year), overly bureaucratic, and it is therefore proposed that the collection
of Class 2 and Class 4 Contributions should be aligned.
Class 4 Contributions are collected annually with income tax. The standard
system is that, following assessment of the income shown on a self-employed
person’s tax return for the previous year to April 5, any balance of income
tax and Class 4 Contributions must be paid no later than the following January
6. There may be no balance or it may be small, because payments on account of
tax and Class 4 Contributions are also due on January 6 for the current tax
year which carry forward to the assessment for that year once the person’s tax
return has been submitted.
It is proposed that self-employed people should pay their Class 2 Contributions
for the whole of the tax year at the same time as their Class 4 Contributions
payment on account: i.e. on or before January 6 in the tax year.
Where it is known that someone will not be self-employed for the whole of the
year, e.g. they reach state pension age or they become an Incapacity Benefit
recipient, the amount of Class 2 Contributions which they are asked to pay will
reflect this, the government confirmed.
A consultation period is to run until March 2, 2012, to allow for feedback from stakeholders.
LAWANDTAX-NEWS.COM
