Self-Employed? Don't Miss Out on Your State Pension: What You Need to Know About Class 2 National Insurance Contributions

June 29th, 2023

Hey, self-employed friends! Are you paying your Class 2 National Insurance Contributions (NICs)? If not, you might want to listen up. These flat-rate contributions are currently charged at £3.45 a week and are mandatory if your profits exceed the lower profits threshold (£11,908 for 2022/23 and £12,570 for 2023/24). And if you don't pay them or get credit for them, you could miss out on state retirement pension and other contributory state benefits. So, let's make sure you're not missing out on that sweet, sweet pension money.

Now, if you're already paying your Class 2 NICs, you're probably doing so via the self-assessment regime at the same time as paying any income tax due on 31 January after the tax year end. But here's the thing: pre-6 April 2022, if your profits were below the small profits threshold, no liability to Class 2 NIC was payable. However, if you wanted that year to count towards the state pension, voluntary Class 2 payments were required. Confusing? Yeah, we thought so too.

But wait, there's more! HMRC recently announced that it has identified 3,900 customers who deferred filing their 2020/2021 self-assessment return until after 31 January 2023. And unfortunately, it's now too late for those folks to pay voluntary Class 2 NICs. That means the year won't count towards the state pension and other contributory state benefits. Oops! HMRC will be writing to those customers to let them know what's up.

If you've already made payment for Class 2 NIC and find out you've made an overpayment, don't expect a refund. That amount will be retained to be deducted from any future tax payments unless a formal repayment claim is made. And if you want the 2021/22 year to count towards the state pension, Class 3 voluntary payments will be required at a rate of £15.85 per week.

But hey, there's some good news too! Post-6 April 2022, the National Insurance Contributions (Increase of Thresholds) Act 2022 created a new form of NIC credit. A self-employed earner whose profits are below the same threshold for Class 4 NIC charges (i.e., £9,880 for 2023/24) is now treated as having paid Class 2 NICs. This means you can secure a qualifying year for zero contribution cost and make voluntary Class 2 contributions redundant. Hooray!

Now, if you're missing NIC years from before 2006/07, you still have a few weeks to make up for it by paying voluntary Class 3 NICs. But don't worry if you're under 45 - you still have plenty of time to pay Class 1 or Class 2 NICs. And let's be real, who wants to think about retirement when you're young and fabulous anyway?

So there you have it - everything you need to know about Class 2 NICs and how they affect your state benefits. Stay fabulous, self-employed pals!