What are Class 2 National Insurance Contributions?
Class 2 National Insurance Contributions (NICs) are payable by some self employed individuals.
Starting from the tax year 2022/23 self employed individuals will only be required to pay class 2 NIC if their profits exceed the lower profits limit.
Class 2 NICs is important 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.
The government expects to abolish class 2 national insurance from the 2024/2025 tax year (starting April 2024).
How much is class 2 national insurance?
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.
From April 2023 class 2 NIC is set at a fixed rate of £3.45 per week for every week you are classed as self employed.
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 £6725 from the 2022/2023 tax year.
Starting from 2022/23 if your profits exceed the small profits threshold but do not surpass the lower profits limit, you will be regarded as having paid class 2 NIC without any actual payment required.
This ensures that you can still access contributory benefits just like you would if you had paid class 2 NIC’s.
What is the class 2 lower profits limit?
For the year 2023/24, the class 2 lower profits limit is set at £12,570 (£11,908 for tax year 2022/23).
Class 2 NIC will be due if your self employed profits are over the lower profits limit.
If your self employed earnings fall below £12,570 in the tax year 2023/24, you are not required to make any payments towards class 2 NIC.
Profits between small profits and lower profits threshold
From the 2022/23 tax year if your self employment profits range between the small profits threshold and the lower profits limit you are exempt from class 2 NIC payments but are still considered to have made class 2 contributions.
Profits below small profits threshold
If your profits fall below the small profits threshold of £6,725 in either the 2022/23 or 2023/24 tax years you have the option to make voluntary class 2 NIC payments.
For those who choose to make voluntary class 2 NIC payments they should typically be made at the end of the tax year.
How do I pay Class 2 NICs?
Class 2 NICs are paid to HMRC through self assessment and are automatically calculated as part of your overall self assessment tax liability.
The deadline for class 2 payment is January 31st after the conclusion of the tax year and doesn’t need to be included in any payments made in advance.
Can I pay class 2 NIC voluntarily?
Self employed individuals who earn less than the £6725 should consider making voluntary class 2 contributions to ensure qualification for specific state benefits.
Maternity allowance and in certain cases contributions based employment and support allowance (ESA) are the two benefits that may be affected.
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.
To safeguard your eligibility it is advised to reach out to HMRC and discuss the option of making early payments towards your class 2 NIC.
I am employed and self employed should I pay class 2?
The general answer to this question is “yes”. However, if you already pay the maximum amount of class 1 NIC on your employment income, you may not be required to make any additional contributions.
If you do owe any class 2 NIC it will be included in your self assessment payment due on January 31st, following the end of the relevant tax year.
