Accountants Chester – Tax Tip No. 54

The self-employed have historically paid two classes of National Insurance – Class 2 and Class 4. However, this is set to change from April 2024 with the abolition of Class 2 National Insurance contributions.

What are Class 2 contributions?

The payment of Class 2 contributions has enabled a self-employed person to build up entitlement to the state pension and contributory benefits.

Class 2 contributions are flat-rate weekly contributions payable where profits from self-employment exceed the lower profits threshold, set at £12,570 for 2023/24. The threshold is aligned with the personal allowance and the lower profit limit applying for Class 4 purposes.

Where profits fall between the small profits threshold (set at £6,725 for 2023/24) and the lower profits threshold, a self-employed earner is treated as having paid Class 2 contributions at a zero rate, thereby earning a qualifying year without actually having to pay any National Insurance.

A self-employed earner whose profits are below the small profits threshold is not liable to pay Class 2 National Insurance contributions, but can make voluntary contributions if they choose in order to maintain their state pension record. This is a much cheaper option than paying Class 3 contributions.

The abolition of Class 2 contributions has been a long time coming. Class 2 contributions were to have been abolished and Class 4 contributions reformed with effect from 6 April 2019 (having already been delayed a year). Following a U-turn, the reforms were put on hold as a result of concerns that self-employed earners with low earnings would lose out. However, the introduction of the lower profits threshold and a deemed zero rate on contributions between the small profits threshold and lower profits threshold has addressed this issue, paving the way for the abolition of Class 2 contributions.

Class 4 contributions

Class 4 contributions are profit-related contributions payable by self-employed earners. Contributions are payable at the main Class 4 rate on profits between the lower profits limit and the upper profits limit, and at the additional Class 4 rate on profits in excess of the upper profits limit.

For 2024/25, the lower profits limit is £12,570 and the upper profits limit is £50,270, unchanged from 2023/24 and due to remain at this level until 5 April 2028.

For 2024/25, the main Class 4 rate is 8%, having been reduced from 9%. The additional Class 4 rate is 2%.

Building up pension entitlement for 2024/25 and beyond

With the abolition of Class 2 National Insurance contributions from 6 April 2024, self-employed earners will for 2024/25 onwards build up entitlement to the state pension and contributory benefits where their earnings exceed £12,570. This is the point at which Class 4 contributions become payable.

However, self-employed with profits between £6,725 and £12,570 for 2024/25 will receive a National Insurance credit, earning them entitlement to the state pension and contributory benefits, despite not paying any National Insurance.

For 2024/25, self-employed earners with profits of less than £6,725 will still be able to make voluntary contributions at the 2023/24 Class 2 rate of £3.45 per week. This will be much cheaper than paying Class 3 voluntary contributions, which are to remain at £17.45 per week for 2024/25.

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What are the NI rates for self-employed people in 2024?

  • Class 4 National Insurance: The main rate of Class 4 National Insurance for self-employed individuals is 6% on profits between £12,570 and £50,270 (for the 2024/25 tax year).
  • Class 2 National Insurance: Most self-employed people will no longer be required to pay Class 2 NIC from the 2024/25 tax year onwards.

Important Notes:

  • Accountants Specialising in Tax: Accountants Chester, can help you calculate your National Insurance liability and file your tax returns accurately.
  • NI Rules Can Change: National Insurance rates are subject to change by the government. It's always best to check the latest rates on the official government website:
  • Eligibility for Benefits: Your National Insurance contributions impact your eligibility for certain benefits, such as the State Pension.

Self-Employed Accountants Chester

Several changes to National Insurance contributions took effect in 2024. Here's a summary:

  • Class 1 Employee NI: The main rate for employees decreased from 10% to 8% in April 2024.
  • Class 4 Self-Employed NI: The main rate decreased from 9% to 8% in January 2024, and then further to 6% in April 2024.
  • Class 2 Self-Employed NI: Class 2 NI contributions were abolished in April 2024.

Important Notes:

  • These changes are designed to simplify the NI system and reduce costs for many taxpayers.
  • The exact impact on your contributions depends on your earnings and employment status.
  • It's always best to consult a tax advisor or accountant for personalised advice based on your specific circumstances.

Where to Find More Information:

Self-Employed Accountants Chester

Yes, National Insurance is changing for the self-employed. There have been two changes so far in 2024:

  • In April, Class 2 National Insurance contributions were abolished.
  • Also in April, the main rate of Class 4 National Insurance contributions was reduced from 9% to 8%.

If you're self-employed and your profits are £12,570 or more a year, you'll usually still need to pay Class 4 National Insurance. Accountants Chester can help you understand how these changes affect you and ensure you are paying the correct National Insurance. If you're looking for an accountant in Chester, you can search online or ask for recommendations from other businesses.

Self-Employed Accountants Chester

The recent changes to self-employed National Insurance (NI) contributions mean good news for your tax burden. Here's a breakdown:

  • Class 4 NI Reduction: The main rate has been reduced from 9% to 8% as of April 2024.
  • Class 2 NI Abolished: You'll no longer have to pay Class 2 NI contributions as of April 2024.

How much will I save? The exact amount depends on your profits, but the average self-employed person could save hundreds of pounds each year.

Important: These changes can make your tax situation more complex. Accountants Chester can help in the following ways:

  • Calculate Your Savings: They'll accurately determine how much you'll save based on your specific income.
  • Optimise Your Tax Situation: Accountants ensure you're taking advantage of all available deductions and allowances.
  • Navigate Complexities: Expert advice will make sure you're compliant with the updated NI rules.

Self-Employed Accountants Chester

Is National Insurance cheaper for the self-employed?

Not necessarily. Self-employed individuals in the UK pay a different structure of National Insurance Contributions (NICs) than employees. Here's why it can be complex:

  • Class 2 NICs: Self-employed people pay a flat weekly rate of Class 2 NICs if their profits exceed a certain threshold. This rate is currently lower than what an employee with similar earnings would pay.
  • Class 4 NICs: In addition, self-employed individuals pay Class 4 NICs based on a percentage of their profits. This can potentially be higher than what an employee pays.
  • Overall Picture: The total amount of NICs paid by a self-employed person could be higher or lower than an employee depending on their specific profit levels.

It's important to get advice from Accountants Chester to fully understand your individual National Insurance obligations and how to optimise your tax situation.

Self-Employed Accountants Chester

Yes, self-employed individuals in the UK continue paying Class 4 National Insurance contributions even after reaching State Pension age. However, these contributions cease at the end of the tax year in which you turn your State Pension age.

Key Points:

  • Class 1 and 2 NI contributions stop: You no longer pay Class 1 (employee) or Class 2 (self-employed flat rate) National Insurance once you reach State Pension age.
  • Class 4 continues (if applicable): Class 4 contributions, calculated based on profits, must be paid until the end of the tax year where you reach State Pension age.
  • Income Tax: You'll still be liable for Income Tax if your income exceeds your tax-free allowances.

Important Note: It's always advisable to consult a tax advisor or accountant for personalised advice on your specific circumstances. Accountants Chester area can assist with understanding your specific tax and NI obligations.

You can find more information here:

Self-Employed Accountants Chester

The amount you can earn before paying National Insurance (NI) depends on whether you're employed or self-employed.

  • Employed: You'll start paying NI if you earn above £242 per week, £1,048 per month, or £12,570 per year (for the 2023/24 tax year).

  • Self-employed: You'll pay Class 2 NI if your profits exceed £6,725 per year. You'll also pay Class 4 NI if your profits are above £12,570 per year.

Important Note: These thresholds are subject to change, so always check the up-to-date figures on the official government website:

Self-Employed Accountants Chester

Self-employed individuals in the UK pay two types of National Insurance Contributions (NICs):

  • Class 2 NICs: A flat weekly rate if your profits exceed the Small Profits Threshold (£6,725 for the 2023/24 tax year). Currently, Class 2 NICs are £3.45 per week.
  • Class 4 NICs: A percentage of your profits between the Lower Profits Limit (£12,570 for 2023/24) and the Upper Profits Limit (£50,270 for 2023/24). The rates are:
    • 9% for profits between the two limits.
    • 2% for profits above the Upper Profits Limit.

How to calculate your NICs

Your exact National Insurance liability depends on your annual profits. Here's a simplified example:

  • If you earn £30,000 in a tax year:
    • You won't pay Class 2 NICs (profits exceed the Small Profits Threshold)
    • You'll pay £1,589.10 in Class 4 NICs ([£30,000 - £12,570] x 9%)

Important Notes

  • You usually pay your NICs through your Self Assessment tax return.
  • Regulations can change, so it's crucial to get up-to-date information.

Need help as a self-employed person near Chester?

Accountants Chester can help you accurately calculate your National Insurance payments, handle your tax returns, and give you broader financial advice to optimise your self-employment income.

Self-Employed Accountants Chester

Yes, there have been changes to National Insurance for the 2024/25 tax year:

  • Employees: The main rate of NI for employees has been reduced from 10% to 8%.
  • Self-employed:
    • Class 4 NI contributions have been reduced from 9% to 8%.
    • Class 2 NI contributions have been abolished.

Important Notes:

  • These changes affect earnings within specific thresholds. You can find the latest NI thresholds and rates on the official government website:
  • National Insurance is a complex topic. If you'd like personalised advice on how these changes impact you, it's advisable to consult with Accountants Chester.

Self-Employed Accountants Chester

National Insurance rates for the self-employed in the UK are undergoing changes in 2024. Here's what you need to know:

  • Class 2 NI: Abolished. You won't need to pay weekly flat-rate Class 2 contributions.
  • Class 4 NI: The main rate has been reduced from 9% to 6%.
  • Small Profits Threshold: If your profits are below £6,725, you can still voluntarily pay Class 2 NI to protect your entitlement to state benefits.

Important: These rates are specifically for the 2024/2025 tax year. NI rates can change, so it's always best to double-check the most up-to-date information on the official government website:

Finding Further Help: Accountants Chester can provide personalised guidance on calculating your NI contributions and understanding how these changes impact your specific tax situation.

Self-Employed Accountants Chester

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The information contained in this blog is for general guidance only. It does not constitute professional advice and should not be relied upon as such. Always seek tailored advice from a qualified accountant regarding your specific circumstances.