There are two types of National Insurance contributions (NICs) payable by the self-employed. These are known as Class 2 NICs and Class 4 NICs.

Class 2 NICs are paid by all self-employed taxpayers unless they earn under the Small Profits Threshold (SPT), currently £6,515, which remove the necessity to pay NICs. Class 2 NICs are currently payable at a flat weekly rate of £3.05 for the current 2021-22 tax year. Class 2 NICs count towards payments such as the basic State Pension, the employment and support allowance, maternity allowance and bereavement benefits.

The self-employed are required to pay Class 4 NICs (as well as to Class 2 NICs) if their profits are £9,569 or more a year. Class 4 NIC rates for the tax year 2021-22 are 9% for chargeable profits between £9,569 and £50,270 plus 2% on any profits over £50,270.

There is a specific list of jobs where class 2 NICs are not payable. These are:

• examiners, moderators, invigilators and people who set exam questions
• people who run businesses involving land or property
• ministers of religion who do not receive a salary or stipend
• people who make investments for themselves or others – but not as a business and without getting a fee or commission

If you fall within any of these categories it can be beneficial to get a State Pension forecast and examine whether voluntary Class 2 NICs should be made to make up missing years contributions.

If you have reached the State Pension age and continue to work, in most cases you no longer need to pay employees National Insurance Contributions (NICs).

At State Pension age, the requirement to pay Class 1 and Class 2 NICs ceases. However, you will remain liable to pay any NICs due to be paid to you before reaching the State Pension age. If you continue working, you will need to provide your employer with proof of your age.

Your employer remains liable to pay secondary Class 1 employer NICs. If you would rather not provide proof of age to your employer you can request a letter (known as an age exception certificate) from HMRC confirming, you have reached State Pension age and are no longer required to pay NICs.

If you are self-employed you will need to pay Class 4 NICs for the remainder of the year in which you reach State Pension age but will be exempt from the following year.

HMRC provides the following example if you reach State Pension age on 6 September 2021. You will stop making Class 4 contributions on 5 April 2022 and pay your final Class 4 bill by 31 January 2023, together with your Income Tax.

If you have overpaid NICs you can claim the excess back from HMRC.

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the amount of qualifying years of National Insurance contributions which can increase the amount of benefits a person is entitled to, such as the State Pension.

For example, National Insurance credits may be available to:

• those looking for work,
• who are ill, disabled or on sick pay,
• on maternity or paternity leave,
• caring for someone or
• on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits, whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

There are usually no National Insurance credits available to the self-employed required to pay Class 2 National Insurance, nor for older married women who chose to pay a reduced rate of National Insurance (pre-April 1977).

Class 3 National Insurance Contributions (NICs) are a voluntary contribution paid by those wishing to fill gaps in their NICs contribution record and can be used by taxpayers who have not made sufficient compulsory contributions or are not liable to pay any other class of National Insurance contributions.

Essentially, Class 3 contributions can be used to secure certain state benefits, and more importantly, entitlement to a full State Pension. The form (CA5603) to pay voluntary Class 3 NICs has recently been updated.

It may be worth paying Class 3 NICs if, for example, you are close to State Pension age and don’t have enough qualifying years to get the full State Pension or if you are self-employed and don’t have to pay Class 2 contributions because you have low profits or live outside the UK, but you want to qualify for benefits.

You can pay voluntary Class 3 National Insurance contributions if you are:

• over 16
• not working
• not liable to pay Class 1 and/or Class 2 National Insurance contributions as a self-employed person
• a woman who revokes her married woman’s or widow’s reduced rate election part way through a tax year
• a self-employed person who has profits below the Small Profits Threshold or was previously exempt from paying Class 2 National Insurance contributions.

Class 3 NICs are usually paid by monthly direct debit. It is also possible to pay quarterly and there are special arrangements for people who are abroad or are going abroad. For 2018-19, Class 3 NICs are payable at £14.65 per week, so a full year’s worth of contributions costs £761.80. Before paying Class 3 NICs, it is important to check if it is beneficial to do so.

In a surprise move, the government has announced that following a lengthy consultation the planned abolition of Class 2 National Insurance Contributions (NIC) will not take place in the current parliament. The announcement was made in a written statement by Robert Jenrick MP, the Exchequer Secretary to the Treasury on 6 September 2018. The withdrawal of Class 2 NICs was originally due to take place from April 2018, but had been delayed until April 2019.

The written statement cited concerns relating to the impact on self-employed individuals with low profits. They would have suffered an increase in costs if they have made voluntary NIC payments to maintain access to the State Pension. There were also concerns that the planned abolition of Class 2 NICs would have actually made the tax system more complex at a time when the government is trying to simplify the tax code. The government have said that they will keep the issue under review ‘in the context of the wider tax system and the sustainability of the public finances’.

Class 2 NICs are currently paid by self-employed taxpayers and members of partnerships if their annual profits are over £6,205. Class 2 NICs are payable at a flat weekly rate currently, £2.95. Class 2 NICs count towards payments such as the state retirement pension, the employment and support allowance, maternity allowance and bereavement benefits.

The government still intends to legislate for reforms to the NIC treatment of termination payments and income from sporting testimonials, set out in the draft NICs Bill.