What are Class 2 National Insurance Contributions?

Class 2 National Insurance Contributions can be paid by some self employed individuals on a voluntary basis.

From 6 April 2024 self employed individuals aged between 16 and the state pension age will no longer be required to pay class 2 NIC’s.

The regulations concerning class 2 NIC’s were changed which means self employed people don’t have to pay a class 2 contribution.

Importantly some self employed individuals who earn below the small profits threshold or are exempt should consider making voluntary class 2 payments.

Class 2 NIC’s are vital because it gives self employed individuals the opportunity to use various state benefits, including the basic state pension, bereavement benefits, maternity allowance, and contributory employment and support allowance (ESA).

The calculation for class 2 NIC’s depends on the number of weeks you were registered as self employed during the tax year.

Provided they meet the necessary conditions both employed and self employed people working abroad can also pay class 2 NIC’s by choice so they qualify for some state benefits.

Should I pay class 2 NIC voluntarily?

Self employed individuals who earn less than the £6,725 should consider making voluntary class 2 contributions to ensure qualification for specific state benefits.

HMRC also expects the following self employed people to review their class 2 national insurance situation because their liability is not automatically covered:

• Individual landlords if they have more than one property and their primary form of income is being a landlord.
• Invigilators.
• Examiners.
• Moderators.
• If you set exam questions.
• Ministers of religion who don’t get a wage or stipend.
• If you make investments not as a business without payment on the behalf of others or yourself.
• People who have now left the UK who were working in the UK immediately before leaving and have since worked outside the UK can typically make voluntary contributions to cover gaps in your national insurance record.

I am employed and self employed should I pay class 2?

If your self employed income is below the threshold then the general answer to this question is “yes”.

However, if you already pay the maximum amount of class 1 NIC’s on your PAYE employment income, you may not be required to make any additional contributions.

If you do choose to pay class 2 NIC it will be included in your self assessment payment due on January 31st, following the end of the relevant tax year.

How much is class 2 national insurance?

From April 2023 class 2 NIC is set at a fixed rate of £3.45 per week (£179 for a full year) for every week you are classed as self employed.

The calculation for class 2 national insurance contributions is determined by the total number of weeks that you work as a self employed individual within the tax year.

How much you will need to pay is based on your business profits with the first week of the contribution year starting on the first Sunday after 5 April.

What is the class 2 small profits threshold?

The class 2 small profits threshold is set at £6,725 from the 2022/2023 tax year onwards.

How do I pay class 2 NICs?

To pay class 2 national insurance people who are self employed can pay through self assessment when they complete their tax return.

The class 2 payment is calculated automatically as part of your overall self assessment tax liability.

The deadline for class 2 payment through self assessment is January 31st after the conclusion of the tax year and doesn’t need to be included in any payments made in advance.

If you are abroad HMRC form CF83 may be applicable and can let you pay class 2 for periods where you have been outside the UK.

If you don’t complete a self assessment tax return in the UK you can pay HMRC via bank transfer using a specific reference number.

How to check your national insurance record

HMRC let you check your national insurance record online via .GOV so you can plan for the future.

The online national insurance checker let’s you review:

• How much national insurance you have paid up to the start of the current tax year.
• If you have any gaps in contributions that are not counted towards your state pension.
• If voluntary contributions are made how it will affect your state pension and how much the contributions will cost.

National insurance credits are also available and worth finding out more about if think you need to fill in gaps in your national insurance record.

For anyone who is unsure if voluntary class 2 payments are necessary it is advised to reach out to HMRC to discuss the option of making payments towards your national insurance record.