Tax Glossary

Class 2 National Insurance

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Last updated on:
March 17, 2024

Class 2 National Insurance (NI) contributions are part of the UK's National Insurance system, specifically designed for self-employed individuals. These contributions are crucial for ensuring eligibility for certain state benefits, including the State Pension.

Key Changes Coming in the 2024/25 Tax Year

Beginning with the 2024/25 tax year, Class 2 NI contributions for self-employed people are set to be scrapped. While this eliminates a mandatory financial obligation for many, voluntary contributions will still be possible for those earning below the threshold who wish to maintain eligibility for certain benefits.

Cost of Class 2 National Insurance

Until they're scrapped, the rate for Class 2 NI is a fixed £3.45 per week, totalling approximately £179 per year. This is required regardless of income level, in contrast to Income Tax, which is dependent on earning above the tax-free Personal Allowance.

Overview of National Insurance Classes

  • Class 1: For employees earning over £242 per week under the State Pension age, deducted through PAYE at rates of 10% (or 2% for earnings over £262 a week).
  • Class 1A/1B: Paid by employers on employee benefits at a rate of 14.53%.
  • Class 2: For the self-employed with earnings over £6,725 annually, payable through Self Assessment (to be scrapped from 6 April 2024).
  • Class 3: Voluntary contributions to cover NI record gaps, payable via Direct Debit at £17.45 per week.
  • Class 4: For the self-employed earning over £12,570 annually, payable through Self Assessment at rates of 9% (or 2% for earnings over £50,270), with a reduction to 8% starting 6 April 2024.

Payment and Calculation

NI contributions are settled through a Self Assessment tax return, similarly to Income Tax. This system simplifies the process for those with multiple sources of income or varying employment statuses.

  • If your annual earnings surpass £12,570, you'll also be subject to Class 4 NI contributions.
  • Individuals juggling employment and self-employment will need to navigate multiple classes of NI contributions, including Class 1, and potentially Class 4, alongside the soon-to-be-scrapped Class 2.

To accurately determine your NI obligations, using a National Insurance calculator can provide clarity, factoring in your earnings and expenses to calculate the precise amount you owe.

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