Self employed people pay class 2 National Insurance if their taxable profit is over £6,205, at a flat rate of £2.95 per week – which equates to £153.40 per annum. They are also liable for class 4 National Insurance if their taxable profit is over £8,424 and the current rate for this is 9% for profits between £8,424 and £46,350. Profits over this threshold are chargeable at 2%.
Class 2 contributions count towards several state benefits such as the basic and new state pension, employment and support allowance, as well as maternity allowance and bereavement support allowance.
Both of these classes of National Insurance are dealt with as part of your Self Assessment Tax Return and are payable by the 31 January, following the end of the tax year to which they relate; for example, your liability for the year ended 5 April 2018 is due by 31 January 2019.
Class 2 contributions were originally due to be scrapped in April, then the move was delayed by a year and it was recently announced that class 2 national insurance contributions will continue and will not be abolished in this Parliament. The reason the Government are giving for this change in policy is that low earning self employed people would pay more to access the state pension, as it’s estimated that around 300,000 self people earning less than £6,000 a year are paying class 2 National Insurance voluntarily in order to access the state pension. If they were abolished they would have needed to switch to paying class 3 voluntary contributions which are currently payable at a rate of £14.65, therefore they would have been faced with an annual increase of over £600.
Labour have labelled the move as a betrayal of the self employed and the Federation of Small Businesses said it would hit more than 3 million people and believe it will net the Treasury over £350 million annually in the 3 years to 2021.
If you have any concerns relating to your National Insurance record and want to access your state pension forecast, then the best thing to do is to set up a personal tax account with HMRC which provides lots of useful information.
If you need any help at all, don’t hesitate to get in touch with us.