What’s new for Class 2 National Insurance for tax year 22/23 onwards?
For those of you that have already completed your tax return for this year and didn’t have a high level of self-employed profit, you may notice something strange is going on.
You always have an option to pay Class 2 National Insurance if your self-employed profits are under £6,725. It means you do not have to pay the £3.15 a week for the 2022/23 tax year. It is optional. I always encourage it as it goes towards a few state benefits, but more importantly it adds a year towards your state pension.
This is the same that has been all the time if you’re below a small profits threshold. No change there.
Should your self-employed profit be over £11,908, then you have to pay the full Class 2 amount. Again, no difference with that. For 23/24, it will be £12,570 because the government brought Class 4 National Insurance thresholds in line with income tax threshold. Yay. Makes things so much easier.
Where it gets strange is if you have self-employed profits between £6,725 and £11,908, then the government says you don’t have to pay Class 2 National Insurance and they’ll give you something called a notional credit and add that year to your National Insurance record. You get the full year that goes towards your state benefit, but you don’t have to pay for it. Woo hoo. No, they don’t actually pay you back the £163.80, it is notional. I have been asked that several times.
So this is something to think about. If you have no other income and your self-employment profit is low, try and get your profits between £6,725 and £11,908. That way you won’t have to pay Class 2 National Insurance and you’ll get the credit.
But beware, there is no point in increasing your self-employment if you breach the threshold of income tax with other income such as PAYE income, rental income, etc because increasing your self-employed profits to save the National Insurance will actually then push you up and more pay income tax. So that’s just the heads up.
There is a bit of tax planning you can think about, but don’t think too hard about it. It all depends if you have other income apart from self-employment.
