Most self-employed individuals are liable for two types of National Insurance contributions (NICs): Class 2 NICs and Class 4 NICs.
Class 2 NICs apply to all self-employed taxpayers unless their earnings fall below the Small Profits Threshold (SPT), currently set at £6,725, which exempts them from NIC payments. As of the 2023-24 tax year, Class 2 NICs are payable at a fixed weekly rate of £3.45. These contributions count towards various benefits, including the basic State Pension, employment and support allowance, maternity allowance, and bereavement benefits.
Additionally, most self-employed individuals are required to contribute to Class 4 NICs. Self-employed individuals must pay Class 4 NICs (in addition to Class 2 NICs) if their annual profits exceed £12,570. For the 2023-24 tax year, Class 4 NIC rates are 9% on chargeable profits ranging from £12,570 to £50,270, with an additional 2% applied to profits exceeding £50,270.
Certain specific roles and circumstances exempt individuals from paying Class 2 NICs. These include:
- Examiners, moderators, invigilators, and those responsible for setting exam questions.
- Individuals engaged in land or property-related businesses.
- Ministers of religion who do not receive a salary or stipend.
- Individuals who make investments for themselves or others, but not as a business, without receiving fees or commissions.
If you fall into any of these categories, it’s advisable to consider obtaining a State Pension forecast and assess whether making voluntary Class 2 NIC contributions is beneficial to fill any gaps in your contribution history.
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Source: HMRC website.