Paul Sanchez
National Insurance Contributions (NICs) are payable by employees, employers, and the self-employed. There are two types of NICs for self-employed individuals: Class 2 and Class 4. This answer will focus on the rate for Class 2 NICs. From April 2024, most self-employed individuals are no longer required to pay Class 2 NICs. However, those with profits above the £12,570 'Lower Profits Limit' are still liable for Class 2 contributions. The standard rate for Class 2 NICs is £3.45 per week, and self-employed individuals can choose to pay this rate voluntarily to preserve their entitlement to contributory state benefits, such as the State Pension.
| Characteristics | Values |
|---|---|
| Who Pays | Self-employed individuals aged 16 to State Pension age |
| Payment Frequency | Weekly |
| Rate | £3.45 per week |
| Year | 2024-2025 |
| Who is Exempt | Self-employed individuals with profits above £12,570 |
| Who Pays Voluntarily | Self-employed individuals with profits under £6,725 |
| Benefits | State Pension, Maternity Allowance, Employment & Support Allowance |
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What You'll Learn
Who pays Class 2 NICs?
Class 2 National Insurance contributions (NICs) are payable by most self-employed individuals aged between 16 and State Pension age. The contributions are paid at a weekly flat rate, collected via Self-Assessment along with any tax due for each tax year. For the 2023/24 tax year, Class 2 NICs are payable at £3.45 per week by self-employed individuals with profits above the £12,570 'Lower Profits Limit'. Those with profits between the £6,725 'Small Profits Threshold' and the £12,570 limit do not have to pay Class 2 NICs but receive a National Insurance Credit, entitling them to the same benefits.
Self-employed individuals with profits below £6,725 do not have to pay Class 2 NICs and do not benefit from a National Insurance Credit. However, they can choose to pay Class 2 NICs voluntarily at the standard rate to preserve their entitlement to contributory state benefits. From 6 April 2024, self-employed individuals will no longer be required to pay Class 2 NICs, as announced in the Autumn Statement 2023. However, Class 2 NICs will still exist to allow those with profits below the Small Profits Threshold to make voluntary contributions.
It is important to note that some individuals may pay reduced rates of Class 2 NICs, and the position may differ for those who are both employed and self-employed. Additionally, there is a separate process for paying voluntary Class 2 contributions if an individual works or lives abroad and is eligible. Most people pay Class 2 NICs as part of their Self-Assessment tax bill, but they can also choose to pay voluntary contributions to fill any gaps in their National Insurance record or preserve their entitlement to certain benefits, such as the State Pension.
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How much are Class 2 NICs?
National Insurance contributions (NICs) are paid to HMRC by employees, employers, and the self-employed. There are two types of NICs for self-employed people: Class 2 and Class 4. Class 2 NICs are calculated annually as part of your Self Assessment tax return. The total amount of contributions due will be included in the overall bill, which is sent to you following the completion of your return and includes any income tax you owe.
Class 2 NICs are payable at a weekly flat rate by most self-employed individuals aged between 16 and State Pension age. For the tax year ending April 5, 2024 (the 2023/24 tax year), Class 2 NICs are payable at £3.45 per week by self-employed people whose taxable profits are more than the £12,570 'Lower Profits Limit'. A full year's worth of Class 2 NICs would be £179.40 (52 weeks at £3.45 per week). Those with profits in 2023/24 of less than £12,570 but more than the £6,725 'Small Profits Threshold' do not have to pay Class 2 NICs but receive a National Insurance Credit, which entitles them to the same benefits as those who pay Class 2 NICs.
Self-employed individuals with profits below £6,725 in 2023/24 do not have to pay Class 2 NICs and do not benefit from a National Insurance Credit. However, they can choose to pay Class 2 NICs voluntarily at the standard rate of £3.45 per week to preserve their entitlement to contributory state benefits. The rate will be frozen at £3.45 per week for the 2024/25 tax year.
From April 6, 2024, self-employed taxpayers will no longer need to pay Class 2 NICs. However, those with profits above £12,570 will still receive access to contributory benefits, including the State Pension, without having to pay Class 2 NICs. Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits, including the State Pension, through a National Insurance Credit. Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits, including some overseas workers, will continue to be able to do so.
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How to pay Class 2 NICs
National Insurance contributions (NICs) are paid by self-employed individuals to qualify for certain benefits, including the State Pension. Class 2 NICs are payable at a weekly flat rate of £3.45 by most self-employed individuals. For the tax year ending April 5, 2024, Class 2 NICs are payable by self-employed people whose taxable profits exceed the £12,570 'Lower Profits Limit'. Those with profits below the £6,725 'Small Profits Threshold' do not have to pay Class 2 NICs but can choose to pay the standard rate voluntarily to preserve their entitlement to contributory state benefits.
Most people pay Class 2 NICs as part of their Self Assessment tax bill. If you have missed the payment deadline, you will need to contact the National Insurance helpline to obtain a reference number and make your payment. You may also choose to pay Class 2 NICs voluntarily if you are not eligible to be treated as having paid them. This applies if you are an examiner, moderator, invigilator, or person who sets exam questions; a minister of religion who does not receive a salary; a person who makes investments without receiving fees or commissions; or a landlord.
If you do not pay Class 2 NICs through Self Assessment, you will need to register with HM Revenue and Customs (HMRC). You can register at any time and pay contributions for the past 6 tax years. HMRC will send you a payment request with an 18-digit reference number required for making a payment. They will send you a payment request each year until you inform them that you no longer want to make voluntary contributions.
There is a different process for paying voluntary Class 2 NICs if you work or live abroad and are eligible. Allow 21 working days to set up a Direct Debit if it is your first time.
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Benefits of paying Class 2 NICs
Class 2 National Insurance Contributions (NIC) are paid by self-employed individuals to qualify for certain benefits. While Class 2 NICs are usually paid as part of the self-assessment tax bill, some self-employed people may choose to pay voluntary contributions. Here are some benefits of paying Class 2 NICs:
Qualification for State Benefits
The main benefit of paying Class 2 NICs is to qualify for 'contributory' state benefits, which are based on the amount of NICs paid. The State Pension is the primary contributory benefit, and individuals typically need a minimum of 10 qualifying years on their National Insurance record. Other contributory benefits include Maternity Allowance and Employment & Support Allowance.
Filling Gaps in National Insurance Record
Paying voluntary Class 2 NICs can help fill any gaps in your National Insurance record. This is especially useful if you want to ensure you receive contributory benefits, such as the State Pension, which requires a certain number of qualifying years.
Protection of Eligibility for Benefits
By paying Class 2 NICs, you can protect your eligibility for certain state benefits. Some benefits, such as Maternity Allowance and Employment & Support Allowance, rely on having paid a certain amount of Class 2 NICs within a defined time. Voluntary contributions can ensure you meet the requirements to receive these benefits.
Access to Contributory Benefits without Payment
Self-employed individuals with profits between the Small Profits Threshold (£6,725) and the Lower Profits Limit (£12,570) are treated as having paid Class 2 NICs without actually having to make the payments. By paying voluntary Class 2 NICs, individuals with profits below the Small Profits Threshold can also access these contributory benefits without making the usual payments.
Lower Cost of Voluntary Contributions
For individuals working overseas, paying voluntary Class 2 NICs can be more cost-effective than paying Class 3 NICs. The weekly rate for Class 2 NICs is significantly lower than that of Class 3 NICs, allowing those working abroad to contribute towards state benefits at a reduced cost.
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Changes to Class 2 NICs
National Insurance contributions (NICs) are payable by employees, employers, and the self-employed. There are two types of NICs that are relevant to self-employed individuals: Class 2 and Class 4.
From 6 April 2024, self-employed individuals will no longer be required to pay Class 2 NICs. This change was announced during the Autumn Statement 2023 and is part of a series of measures to reduce the NIC liabilities of both employees and the self-employed. While most self-employed individuals will no longer have to pay Class 2 NICs, they will still have access to contributory benefits, including the State Pension.
For the 2023/24 tax year, Class 2 NICs are payable at a weekly flat rate of £3.45 by self-employed individuals with profits above the £12,570 'Lower Profits Limit'. Those with profits between the £6,725 'Small Profits Threshold' and the £12,570 'Lower Profits Limit' do not have to pay Class 2 NICs but receive a National Insurance Credit, which entitles them to the same contributory state benefits. Self-employed individuals with profits below £6,725 also do not have to pay Class 2 NICs and do not benefit from a National Insurance Credit. However, they can choose to pay Class 2 NICs voluntarily at the standard rate to preserve their entitlement to contributory state benefits.
The changes to Class 2 NICs are intended to simplify the system and reduce the burden of NICs on the self-employed. However, it is important to note that eligibility for certain state benefits, such as maternity allowance and employment and support allowance, is based on having paid a certain amount of Class 2 NICs within a defined time. As such, some self-employed individuals may still choose to pay Class 2 NICs voluntarily to protect their eligibility for these benefits.
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Frequently asked questions
The class 2 rate for national insurance contributions is £3.45 per week for the 2024/25 tax year.
Self-employed individuals with profits above the £12,570 'Lower Profits Limit' have to pay class 2 national insurance contributions. Those with profits between £6,725 and £12,570 do not have to pay but receive a National Insurance Credit, and those with profits below £6,725 do not have to pay but can choose to pay voluntarily.
Class 2 national insurance contributions provide entitlement to contributory state benefits such as the State Pension, Maternity Allowance, and Employment and Support Allowance.
