Changes are coming to Class 2 National Insurance for the self-employed with lower profits. So what are the practical implications and how might they affect you?
Payment thresholds for National Insurance were increased in line with the Income Tax personal allowance so from 2023/24 onward there will be a lower profits limit to match. For those with very low earnings, they'll find that they'll continue to build up National Insurance credits, but will not pay any Class 2 NIC.
These changes can be shown by example:
- Situation A: Those with tax-adjusted profits over the lower profits limit (£11,908 for the 2022/23 tax year and in line with the personal allowance in future years) will be required to pay Class 2 NICs as normal, at a rate of £3.15 per week
- Situation B: Those with tax-adjusted profits below the lower profits limit, but more than the small profits threshold (£6,725 for the 2022/23 tax year), will not be required to pay Class 2 NICs, but will be treated as having paid Class 2 NICs for the year
- Situation C: Those with tax-adjusted profits below the small profits threshold will not be treated as having paid Class 2 NICs, so may need to pay voluntary Class 2 NICs (at the same rate of £3.15 per week) if they wish to maintain their entitlement to contributory state benefits
As per situation C above, those with the very lowest profits may potentially need to pay voluntary Class 2 NICs to ensure a qualifying year whereas those with slightly higher profits will pay nothing.
There is a lot of technical information behind these Class 2 changes, but it'll be safe to say that not many tax advisors are going to give it a very high priority. It is a useful thing to be aware of, so be sure you pay the right NICs to get your qualifying year, but do be careful of profit limits and even clashes with any benefit claims.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.