Class 2 NI is a type of National Insurance contribution that self-employed individuals are required to pay in the United Kingdom. It is a form of insurance that provides certain benefits and entitlements, such as the State Pension, Maternity Allowance, and Bereavement Support Payment.

Here are some key points to understand about Class 2 NI contributions:

1. Purpose: Class 2 NI contributions are primarily intended to ensure that self-employed individuals build up entitlement to the State Pension and other state benefits. By making these contributions, you are essentially making regular payments into a system that provides financial support during retirement and certain life events.
2. Payment: Since April 2015 Class 2 NI contributions have been paid through Self-Assessment tax returns, prior to this they could be paid bi-annually or monthly by Direct Debit.
3. Eligibility: If you are self-employed and your profits exceed a certain threshold (known as the Lower Profits Threshold from April 2022), you will generally be liable to pay Class 2 NI contributions.
4. Benefits: By paying Class 2 NI contributions, you are building up a qualifying period that counts towards the State Pension. The number of qualifying years you need to be eligible for a full State Pension can vary, but typically it is around 35 years. Additionally, Class 2 NI contributions may also entitle you to other benefits such as Maternity Allowance if you meet the relevant criteria.
5. Administration: Class 2 NI contributions are typically paid to HM Revenue & Customs (HMRC) along with your tax payments. This means that when you file your annual Self-Assessment tax return, you will calculate and pay any Class 2 NI contributions owed for the tax year.

It is worth noting that Class 2 NI contributions are separate from Class 4 NI contributions, which are also paid by self-employed individuals but are based on profits rather than a flat rate.

What Has Changed?

From April 2022 if your self-employed profits fall between the Small Profits Threshold (£6,725 for 2022/23) and the Lower Profits Threshold (£11,908 for 2022/23), you will be treated as having made Class 2 NI contributions without needing to pay anything.

Prior to this, if your self-employed profits exceeded the Small Profits Threshold you were usually required to pay Class 2 NI contributions. For 2022/23 the Class 2 NI rate is £3.15 per week, so self-employed individuals with earnings between £6,725 and £11,908 will be saving £163.80 on their tax bill.

If your self-employed profits are below £6,725 you can still voluntarily pay class 2 NI contributions to ensure you have a ‘qualifying year’ and maintain your entitlement to contributory state benefits.

Contact us for more information on how this change may affect you.