Changes are in place to Class 2 National Insurance for the self-employed with lower profits. So what are the practical implications and how might they affect you?
There is a lot of technical information behind these Class 2 changes!
Following on from the Government's Spring Statement, from April 2022 we saw rates for both Class 1 and Class 4 NICs increase by 1.25% as a precursor to the abandoned Health & Social Care Levy. One of the few measures kept after Kwasi Kwartengs mini-budget was to reduce the rate back down again.
Payment thresholds for National Insurance were increased in line with the Income Tax personal allowance and from 2023/24 onward there will be an increased lower profits limit for the self-employed 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.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about Class 2 NICs for low-profit traders, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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