UPDATE 31 JULY 2023: Please note this article has been updated since publication on 29 March 2023 to reflect changes announced by government on 12 June 2023.
The way that class 2 NIC is calculated and charged is changing.
These changes will take place from 2022/23 and the deadline to make late class 2 NIC payments back to tax year 2006/07 has been extended to 5 April 2025.
What are class 2 National Insurance Contributions (NICs)?
Class 2 NIC is the basic rate of National Insurance for the self-employed. It goes towards your individual national insurance record and helps to build entitlement to basic social security including State Retirement Pension, Contributory Employment & Support Allowance (if you are unable to work through sickness or injury), Maternity Allowance (if expecting a child and unable to access Statutory Maternity Pay) and Bereavement Support Payment (paid upon death of a partner).
Class 2 calculation and charging changes from 2022/23
From tax year 2022/23, the way in which class 2 NIC is charged is changing so that not everyone will need to make payments in order to receive contributions.
Prior to tax year 2022/23, you needed to pay Class 2 NIC if your profits were above the Small Profits Threshold (SPT), which was £6,515 in the 2021/22 tax year.
For 2022/23 onwards, the rules are as follows:
- If your profits are at or above the Lower Profits Limit (LPL) of £11,908, you will need to pay class 2 NIC, charged at £163.80 for the year (£3.15 per week). It is charged and collected as part of the tax return.
- If your profits from self-employment are between the Small Profits Threshold (SPT) of £6,725 and the Lower Profits Limit of £11,908 then there is no Class 2 NIC to pay. Instead you will be treated as making Class 2 NIC payments and will be able to access the social security payments outlined above as if you had paid Class 2 NIC. There is no need to make voluntary Class 2 NIC payments if you fall into this group.
- If your profits are below the Small Profits Threshold then you can choose to pay voluntary Class 2 NIC. It is highly advisable to do so for the sake of your national insurance record if you are not already regularly paying class 1 NIC through other employment (PAYE) work. To ensure the voluntary class 2 NIC payment is made and applied to your record, we recommend that you call HMRC directly on 0300 200 3500.
From 2023/24 onwards, the Lower Profits Limit will be the same amount as the Personal Allowance for income tax, which is frozen at £12,570 until 2027/28. From 2023/24 the Small Profits Threshold for class 2 NIC will be £6,725 per year and class 2 NIC will be charged at £179.40 for the year (£3.45 per week).
Late class 2 payments: deadline extended to 5 April 2025
We are advising self-employed members to check for gaps in their National Insurance record and take the opportunity to make a late payment of voluntary class 2 NIC where applicable before late payment rules change on 5 April 2025.
6 tax year rule
The basic rule for the late payment of class 2 NIC is that both voluntary and unpaid Class 2 NICs can be paid for up to six tax years following the tax year in which they were due. They are usually payable at the current year class 2 rate in which they are paid. See NIM23001 - National Insurance Manual - HMRC internal manual - GOV.UK (www.gov.uk).
Extended time limits for tax years 2006/7 to 2015/16
Time limits to pay class 2 NICs have been extended for tax years 2006/7 to 2015/16. The extended time limits apply if a) you will be reaching State Pension age on or after 6 April 2016, and b) you make the payment by 5 April 2025.
This is a special rule to allow people to plan for the pension rule changes which happened in 2016, including the increase from 30 to 35 years of contributions for maximum state retirement pension. After 5 April 2025, you will lose the right to make late contributions for 2006/7 to 2015/16 altogether. For more information see NIM72270.
Note: payments of voluntary late class 2 NIC made for 2006/07 onwards will currently be charged at the 2022/23 rate (£3.15 per week) until 5 April 2025.
Step One
Get a detailed NIC statement by completing following online form or calling HMRC on 0300 200 3500. Please note the NIC information is provided in your online personal tax account is not detailed enough for comprehensive advice purposes. Make sure to obtain a full history by requesting that the statement start from the tax year in which you reached your 16th birthday. The HMRC statement can be misleading because it implies your only option is to make the more expensive class 3 contributions rather than the cheaper class 2 contributions. This is why it is important to take step two below to make sure you are not spending more than you need.
Step Two
On receipt of your statement, if there are gaps in your NIC record from 2006/07 onwards we recommend that you contact Equity’s Social Security and Tax team for further advice on what you can do in your particular case. Please email a copy of your NIC statement to helpline@equity.org.uk confirming the tax year you registered for self-employment, or call 020 7670 0223 – Mondays and Thursdays, 10am-1pm and 2-5pm.
