As part of the Autumn Statement 2023, the Chancellor announced a raft of changes to National Insurance. One important change was the “abolishment” of Class 2 National Insurance Contributions (“NICs”) for individual taxpayers who are self-employed.
This change has been a number of years in the making. During the 2016 Budget, the Chancellor George Osborne announced that Class 2 NICs would be abolished, with the change due to take effect from April 2018, however this change was not implemented at that time. However, following the announcement in the 2023 Autumn Statement, with effect from 6 April 2024, Class 2 NIC has now been “abolished”. See below for further details on the changes.
Previously, self-employed individuals paid a fixed rate of NICs on any profits above the small profits threshold. For the tax year ending 5 April 2024, the rate was £3.45 a week (£179.40 annually) on profits exceeding the threshold of £6,725. If a self-employed worker’s profits were below this threshold, then they could opt to make a voluntary contribution to ensure access entitlement to contributory benefits (i.e.,State pension) in the same way as if they had paid Class 2 NICs.
If an individual’s profits were between the small profit threshold and the lower profit limit (£12,570 for 2023/24), self-employed individuals were treated as having made Class 2 NIC without having to pay them. Those above the lower profit limit were required to pay Class 2 NICs.
Despite being described as an ‘abolishment’ by the Chancellor, it’s not really an immediate one. Class 2 NICs continue to exist for those who wish to make voluntary contributions, at least in the short term. The fixed rates of weekly NICs remain similar for the 2024/25 tax year. The key points are:
- Those making profits over £12,570 are still treated as having a qualifying year for contributory benefits, but don’t have to pay Class 2 NICs.
- Those making profits between £6,725 and £12,570 are already treated as paying Class 2 NICs and don’t have to pay them — this will continue into 2024/25.
- Those with profits under £6,725 can still pay Class 2 NICs voluntarily to keep up their contributions record for benefits purposes.
Self-employed individuals must also pay Class 4 NICs where profits are in excess of £12,570. From 6 April 2024, the Class 4 NIC rate was anticipated to be reduced to 8% from 9%, but the Chancellor reduced it further to 6% as part of the recent Spring Budget 2024. The additional rate which is also due on any profits over £50,270 remains at 2%.
For further information on the Spring Budget 2024, please keep an eye out on our LinkedIn for commentary on further changes to the UK tax system. If you’re keen to discuss your National Insurance position, please contact the Personal Tax team here at CT.
Author: Dario Cocozza, CT: Personal Tax
