Class 2 NI Introduction
Any self-employed individual who has a profit of £6,725 or more in a tax year will qualify to pay Class 2 NI.
Some Self-employed people are exempt from paying Class 2 NI, these people include examiners, someone who runs a land/property business, ministers of religion, investors for themselves or others but not as a business and without getting a fee or commission. However, even in circumstances that you are exempt, an individual may want to make voluntary contributions to qualify for the benefits listed below.
Currently, Class 2 NI contributions are £3.15 a week. So, depending on how many weeks you are self-employed in the tax year, will be your class 2 NI amount, the maximum amount to be made per years, stands at £163.
Why pay Class 2 National Insurance?
- To qualify for State Pension- (For a full New State Pension you will need 35 qualifying years)
- To qualify for ‘New State Pension’- (this is a regular payment from the government that you can claim if you are male, born after 6/4/1951 and have at least 10 years of NI contributions.)
- To count towards Contribution-based Employment and Support Allowance- (The Contribution-based Employment and Support Allowance provides financial help to people who are unable to work because of illness or disability.)
- To qualify for Maternity Allowance
- To qualify for Bereavement Support Payment- (This is a payment that may be claimed if our husband, wife or civil partner died after 6 April 2017)
If you did not manage to reach the qualifying figure in the tax year for automatic NI Class 2, you can make voluntary Class 2 NI contributions, and this will re-average your payments so that it will be as if you have a qualifying year. You can pay as far back as 6 years.
How to pay?
Most people pay Class 2 and Class 4 National Insurance through their Self-Assessment, otherwise you can use form CA5601 to pay by Direct Debit.
Why does HMRC not allow me to pay Voluntary Contributions in my tax return?
If you are completing your tax return and HMRC are not allowing you to add class 2 NI payment, the reason maybe that you might not be registered as self-employed. You will need to manually fill out the CWF1 form, please note being registered for self-assessment does not automatically set you up as self-employed.
Class 4 NI
If your Self-employment profit is over £11,909 a year you will need to pay Class 4 NI. 9% rate for profit between £11,909-£50,270 and 2% on profits over £50,270. However, important to note that Class 4 Contributions do NOT count towards state benefits.
Paying Class 4 NI does not exempt you from paying Class 2 NI. If Class 2 has not been deducted but Class 4 has, it means you are not registered for Self-employment and Class 2 is still liable for payment. Class 4 is a separate tax for high profit income and therefore Class 2 will almost always be liable.
Stopping to pay National Insurance:
If you are self-employed, you will stop paying Class 2 National Insurance once you reach pension age and Class 4 from the start of the next tax year following your reaching of the pension age.
