Confused about all this talk of Class 2, Class 3, Class 4 contributions for self employed.

Dazed_and_C0nfused

DhwERbf689 said:

Thanks for the link, I just got confused even more when I read it but I'll certainly pass it onto him.

You (or your accountant) would need to verity this but it is from a normally reputable website/organisation.

What part of this is confusing you?

HMRC has confirmed that individuals with adjusted trading profits up to the class 2 small profits threshold (SPT), which for 2022/23 is £6,725 (£6,515 in 2021/22), will continue to be able to make voluntary class 2 national insurance contributions (NIC) in 2022/23 of £3.15pw as is presently the case (£3.05pw in 2021/22). This will include traders who make losses, because a trading loss is equivalent to a profit of £nil for class 2 NIC purposes

DhwERbf689

Everything about it confused me. I can't get my head around any of it. Trying to read any of this stuff confuses the life out of me, it's never in plain English or simple. 

pinnks

Without looking at the guidance or legislation my initial thought was that of course you can pay Class 2 voluntarily if you incur a loss, so long as you are genuinely still self-employed and holding yourself out for business.  

And NI paid voluntarily is simply NI paid voluntarily - if the year is full and qualifying, of course it will qualify for pension purposes.

Any accountant worth their salt should either know the above as a matter of course or be able to consult a colleague who does, especially in a firm of any size.

Anyway, I thought I would go on a guidance hunt and it took 2 minutes to find the answer.  Perhaps you could point your accountant at NIM70001 - Class 2 National Insurance contributions: general information: introduction - HMRC internal manual - GOV.UK and the Spring Statement 2022 and 2023 texts in particular (they are identical):

"If a person’s profits are less than the SPT, or they made a loss, they can choose to pay Class 2 NICs voluntarily to protect entitlement to State Pension and certain benefits. This has not changed."

This derives from Section 11(6) of the Social Security Contributions and Benefits Act (SSCBA) 1992, which says, "If the earner does not have relevant profits of, or exceeding, the small profits threshold, the earner may pay a Class 2 contribution of £3.45 in respect of any week in the relevant tax year that the earner is in the employment." 

If you are "in the employment" and incur a loss, then by definition, you do not have "relevant profits of, or exceeding", anything...

Edit - having read the whole of the above link now, I see S11(6) is referenced directly:

"For those self-employed earners with relevant profits below the SPT or who have no relevant profits, such earners will be eligible to pay voluntary Class 2 NICs (section 11(6) SSCBA 1992)"

DhwERbf689

Thanks for the link, I'll pass it on to them.