what is additional state benifit?

evosy1978

as ive found out self employed pay NI class 2 of £2.30 per week and this goes to towards state pension, but people paying PAYE pay class 1 and pay alot alot more per week, and that goes towards state pension AND additional state pension.

Im quite concerened as ive never really queried why i dont pay as much as my girlfriend who is PAYE. But now someone at work said a self employed persons who pays class 2 NI wont even want to get out of bed for their state pension.

So what kind of additional pension are we talking about???

Is there no way i can pay class 1 like PAYE people???

thanks

janienewcastle

Hello, The reason why self employed people only pay a basic amount of contribitions is because HMRC do not know how much you will be earning in a year. You as a s/e person will get the same amount of basic state pension as a person on PAYE but because they have a salary they have a NI deduction based on their salary. If you earn above a certain threshold (not sure of the exact amount but someone will be along soon) you will also pay a class 4 national insurance which is a percentageof you s/e profit which will bring you more in line with what PAYE deductions are.
Again additional state pension you will not be building towards but you will not be able to pay class 1 - unless you are employed also.
Hope this helps

Pennywise

janienewcastle wrote: »

If you earn above a certain threshold (not sure of the exact amount but someone will be along soon) you will also pay a class 4 national insurance which is a percentageof you s/e profit which will bring you more in line with what PAYE deductions are.

But class 4 is just another tax - it gives you NO additional benefits whatsoever - it is the class 2 that gives you your basic state benefits which gives you the basic state pension. Those employed also get an earnings related additional pension - previously known as SERPS (state earnings related pension) and now more recently called S2P (state second pension), neither of which are available for the self employed. The idea is that you pay less NIC as self employed to compensate you for making your own pension arrangements.

Also note that employees get more favourable benefits in other areas, i.e. job seekers allowance and sick pay, whereas the self employed aren't eligible for the same.

janienewcastle

Yes class 4 is still a national insurance but quite right it does not give any benefits, i was just quoting c4 as an example in relation to c2

S/E people can claim incapacity benefit dependant on conts made but no JSA.

evosy1978

thanks folks.

JUST LANDED has posted on another thread by me with the same question, and he has give some good information about self employed pensions and NI contributions worth a read.

ta