Self Employed NI Contributions Confused!!

Buzyizzy

I am self employed so pay my own tax and NI every year. In the autumn statement NI contributions have been abolished so how will this affect my state pension? Surely I need to pay NI so I get the full pension? 

Dazed_and_C0nfused

Buzyizzy said:

I am self employed so pay my own tax and NI every year. In the autumn statement NI contributions have been abolished so how will this affect my state pension? Surely I need to pay NI so I get the full pension? 

No one needs to pay NI to get the standard new State Pension.

No State Pension contribution class has been abolished from as far as I'm aware.

For the self employed you will continue to pay Class 4 NI (if profits are high enough) but Class 2, which is key for State Pension, will only be payable in limited circumstances.


Cutting National Insurance for the self-employed

We are cutting the main rate of Self-employed National Insurance (Class 4 NICs) by 1p from 9% to 8% from April 2024, for around 2 million people. This takes effect on 6 April 2024.

This is worth £350 for the average self-employed person on £28,200.

From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.

This is a tax simplification that effectively abolishes Class 2 NICs by removing the requirement for self-employed people to pay.

Those with profits between £6,725 and £12,570 will continue to get access to contributory benefits including the State Pension through a National Insurance credit without paying NICs, as they do currently.

Those with profits under £6,725 and others who pay Class 2 NICs voluntarily to get access to contributory benefits including the State Pension, will continue to be able to do so. The weekly rate they pay will be frozen at £3.45 for 2024-25, rather than rising by CPI to £3.70.

The Small Profits Threshold - the point at which the self-employed start to receive National Insurance credits - has been frozen at £6,725, in line with last year’s approach. This supports low income working individuals by maintaining their access to contributory benefits, without having to pay NICs.

[Deleted User]

Hi,

NI is not being abolished, this from the statement:

He also announced two changes to NI for the UK's two million self-employed people.

From 6 April 2024, they will pay 8% on their profits between £12,571 and £50,270, down from 9% at the moment. The government says the cut will be worth £350 a year for an average self-employed person earning £28,200.

From the same date, self-employed people will no longer have to pay a separate category of NI called Class 2 contributions.

The chancellor said this would save the average self-employed person £192 a year, without damaging their NI contributions record or benefits entitlement.

NI on income and profits above £50,270 will remain at 2%.

Veteransaver

I thought class 4 is now being abolished? That's the c£3.45 a week one. Then 

Class 2 is reducing from 9% to 8%
Self employed pay class 2 and 4, or did.
Class 4 was a bit of a hangover from when you paid "stamp" I think.

uknick

Veteransaver said:

I thought class 4 is now being abolished? That's the c£3.45 a week one. Then 

Class 2 is reducing from 9% to 8%
Self employed pay class 2 and 4, or did.
Class 4 was a bit of a hangover from when you paid "stamp" I think.

Wrong way round.  Class 4 is the variable rate based on profits, Class 2 is the flat rate.

For completeness, Class 1 is PAYE variable rate NI and Class 3 is the voluntary contributions anybody can use, mainly used to buy state pension years.

Bostonerimus1

From what I've read Class 2 NI isn't exactly being abolished as you'll still be able to pay voluntary Class 2 NI? 

Jeremy535897

We don't know quite what the future for voluntary class 2 is. See paragraph 3.11 of the Autumn Statement:
3.11 The government will set out next steps on Class 2 reform next year. As part of this reform the government will protect the interests of lower paid self-employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits including the State Pension. This is a progressive reform, giving lower-paid self-employed individuals a significant tax cut. It simplifies the system for self-employed taxpayers, reducing needless complexity, freeing up valuable time for them to grow their businesses rather than interacting with the tax system. This builds on the Spring Statement 2022 decision to ensure that self-employed individuals with profits between the Small Profits Threshold and Lower Profits Threshold could continue to build up National Insurance credits without paying Class 2 NICs. 

Bostonerimus1

Jeremy535897 said:

We don't know quite what the future for voluntary class 2 is. See paragraph 3.11 of the Autumn Statement:
3.11 The government will set out next steps on Class 2 reform next year. As part of this reform the government will protect the interests of lower paid self-employed people who currently pay Class 2 NICs voluntarily to build entitlement to certain contributory benefits including the State Pension. This is a progressive reform, giving lower-paid self-employed individuals a significant tax cut. It simplifies the system for self-employed taxpayers, reducing needless complexity, freeing up valuable time for them to grow their businesses rather than interacting with the tax system. This builds on the Spring Statement 2022 decision to ensure that self-employed individuals with profits between the Small Profits Threshold and Lower Profits Threshold could continue to build up National Insurance credits without paying Class 2 NICs. 

I pay Class 2 voluntary NICs as an expat so right now nothing changes, but I don't expect things to stay the same or for any changes to be particularly well thought out or publicized.

Buzyizzy

Thanks all for quoting the autumn statement, but it doesn’t actually answer my question as nothing in any of the answers clarifies contributions to my pension. 

molerat

The first reply gives all the information.  

If you earn above the SPT you will get credits.  Below the SPT you will still need to purchase voluntary class 2, again as now.  The only thing that has changed is that compulsory payment for class 2 has been abolished and credits will be applied.  Class 2 credits and voluntary payments add to your state pension, as now.

What is unclear about this ?

From 6 April 2024, self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs, but will continue to receive access to contributory benefits including the State Pension.