What are Class 2 and Class 4 National Insurance Contributions (NIC’s) ? | How to pay National Insurance when self-employed

Class 2 and Class 4 National Insurance Contributions are key for self-employed individuals to understand how to pay their NICs correctly. Class 2 contributions are a flat weekly rate for those earning above the small profits threshold, while Class 4 contributions are based on profits above a certain limit. Knowing the differences and payment methods can help self-employed workers manage their tax obligations and qualify for certain state benefits.

Class 2 National Insurance – Changes from April 2024

Who pays?

As of 6 April 2024, most self-employed people no longer need to pay Class 2 NICs if their profits are above the Small Profits Threshold (SPT) of £6,725.

However:

• If your profits are above the SPT, you will receive NI credits automatically without needing to pay Class 2 NICs.
• If your profits are below the SPT, you can choose to pay voluntary Class 2 NICs to protect your entitlement to benefits.

2024–25 rate:

• Voluntary Class 2 NICs: £3.45 per week

What do class 2 NICs count towards?

Voluntary Class 2 contributions can help you qualify for:

• Basic State Pension
• Maternity Allowance
• Employment and Support Allowance (ESA)
• Bereavement Support Payments

Class 4 National Insurance – still required

Who pays?

You must pay Class 4 NICs if your annual profits are £12,570 or more.
2024–25 Rates:

• 6% on profits between £12,570 and £50,270
• 2% on profits over £50,270

This rate has decreased from the previous 9% in 2023–24, helping to reduce the NIC burden on self-employed earners.

How do I pay these NICs?

Both Class 4 NICs and any voluntary Class 2 NICs are typically paid through your Self Assessment Tax Return.

If you’re not registered for Self Assessment but want to make voluntary Class 2 contributions, HMRC will issue a payment request if applicable.

Exemptions from Class 2 NICs

Even before the 2024 change, certain individuals were exempt from paying Class 2 NICs. These exemptions still apply. You are not liable for Class 2 NICs if you:

• Are an examiner, moderator, or invigilator
• Run a business involving land or property
• Are a minister of religion without a salary or stipend
• Make investments for yourself or others (not as a business and without fees/commission)

If you fall into these groups, you may still wish to voluntarily pay Class 2 NICs to ensure your State Pension record remains intact.

Class 2 and Class 4 National Insurance Contributions are essential payments for the self-employed, helping protect your entitlement to state benefits and the State Pension. Contact us today if you need more to understand how these contributions work, the thresholds involved, and the payment process can ensure you stay compliant while managing your financial obligations effectively.