Should I Pay Class 2 NICs Voluntarily?

If you are filling in your tax return, you were probably presented with the option to pay class 2 NICs voluntarily if your profits were below £6,725 (the small profits threshold).

If this has left you wondering what to do and whether you should be paying tax when your self-employment profits are below the statutory threshold to make this payment, then keep reading.

Here, I’ll explain how class 2 national insurance works, how it affects your national insurance record and what to check on to help you decide on the right thing to do.

What are Class 2 NICs?

Until 5 April 2024, Class 2 NICs were a flat rate amount paid by self-employed workers to protect their ability to claim certain state benefits such as:

• Basic state pension;
• New state pension;
• Contribution-based employment and support allowance
• Universal credit;
• Maternity allowance;
• Bereavement Support Payment.

Class 2 NICs for the tax year 2023/24 were payable at £3.45 per week where taxable business profits exceeded £6,725 (the small profits threshold). They were paid via self-assessment, alongside class 4 national insurance and income tax.

Sole traders with business profits below the small profits threshold were given the option on their tax returns to pay class 2 voluntarily to avoid gaps on their national insurance record.

In Autumn 2023, the UK Chancellor announced that class 2 NICs were to be ‘scrapped’, but not for everyone.

From the start of the 2024/25 tax year (6 April 2024 onwards), changes came into effect meaning that many would no longer need to pay class 2 nics, depending on their business profits. Here’s a summary of how it works:

• Self-employed workers with business profits above £12,570 will no longer have to pay class 2 NICs but will be treated as though they had paid their contributions, protecting their entitlement to state benefits like the basic state pension, maternity allowance and ESA as if they had paid it;
• Self-employed workers with business profits between £6,725 (the small profits threshold) and £12,570 (the lower profits limit) will not have to pay class 2 NICs but will, as in previous tax years, continue to benefit from a national insurance credit that protects their entitlement to state benefits.
• Self-employed workers with business profits below £6,725 will not receive a national insurance credit or be deemed to have paid their national insurance so may need to pay class 2 NICs voluntarily to protect their entitlement to state benefits (£3.45 per week for the 2024/25 tax year)

Should You Pay Class 2 NICs Voluntarily?

If you have business profits below £6,725 you’ll be asked on your self-assessment tax return whether you’d like to pay class 2 NICs voluntarily. It’s up to you to decide what to do.

What is a National Insurance Gap?

National insurance payments go into a ‘pot’ – we pay into the pot so that we can take money out when or if needed. But we need to have paid the right amount and type of NI to be eligible.

A gap on your national insurance record is a tax year where you have failed to pay the required national insurance. Having a gap can mean you put yourself at risk of how much state benefit you can claim, if at all.

For example, under the new state pension rules, you can only claim the full state pension if you have made 35 qualifying years of National Insurance contributions. Both class 1 (paid through a payslip) or class 2 national insurance contributions count towards the new state pension. If you have less than 35 qualifying years when it comes to claiming your state pension, the amount you will receive will be pro-rated.

You must have at least 10 qualifying years on your National Insurance record to make any claim for the state pension.

To help you decide whether or not you should pay class 2 NICs voluntarily, start by logging into your personal tax account and take a look at your national insurance record. It will tell you whether you have any national insurance gaps.

If you are employed by someone, your employer will be deducting class 1 NICs, on your payslip (depending on your earnings). These deductions count towards your national insurance record.

Finally, you should also check whether you are receiving national insurance credits in other ways such as the working tax credit which would count towards keeping your national insurance record up to date.

All these factors will count towards deciding whether you pay class 2 national insurance voluntarily.

How You Pay Class 2 NICs Voluntarily

When you fill out your self-assessment tax return, you can choose to pay class 2 NIC as part of finalising the self-employment section of your return. Once you have entered the details about your self-employment earnings you’ll be presented with this screen, where you can choose whether to pay NICs voluntarily:

Want to Read More About Self Employment Tax?

If you’ve enjoyed this post you may like to read more about self-employment tax. Here are some of my most popular blog posts on this topic…

• Self Employed Tax: An Easy Guide for Beginners (2024)
• UK Tax Brackets and Income Tax Bands 2023-24
• The UK 60% Tax Trap Explained (63% in Scotland)
• Claiming Self-Employed Expenses

Any Questions?

I’d love to help if you have any questions about this topic. Feel free to ask over in my group ‘The Self-Employed Club‘.

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