Class 2 NICs – are you happy to pay?
Subject to certain conditions and limits, self-employed earners over the age of 16 and below state retirement age are currently entitled to pay both Class 2 and Class 4 National Insurance contributions (NICs) unless specifically excepted by provisions contained in the Social Security Contributions and Benefits Act 1992.
Class 4 contributions are calculated with reference to an individual’s income from self-employment, but Class 2 contributions are simply charged at a flat weekly rate - £2.95 per week in 2018/19 – where the individual’s self-employed income exceeds the ‘small profits threshold’ (SPT) for the year in question. For 2018/19 the SPT is £6,205, so anyone with profits above that limit should be entitled to pay the weekly Class 2 contribution.
HMRC are responsible for administering Class 2 NICs, and the liability to the charge is reported through self-assessment. This means that they can be paid together with income tax and Class 4 NICs in one go on the 31 January following the end of the relevant tax year.
Those that report profits below the SPT are not liable for Class 2 NICs, although they can sometimes pay voluntarily to protect their entitlement to contributory benefits.
Benefits of paying
In broad terms, they are the entry fee allowing the self-employed to enter the UK’s contributory benefits system. Payment will generally give the payer access to the following benefits, if and when the need arises:
- Maternity allowance
- Contribution-based employment and support allowance
- Widowed parent's allowance
- Basic state pension
- New flat-rate state pension
- Bereavement benefits (except bereavement support payment)
- Bereavement support payment
Payment does not however, count towards contribution-based jobseeker’s allowance.