Class 2 NICs

Guidance on self-employment and Class 2 National Insurance Contributions (NICs)

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Class 2 NICs are flat-rate contributions primarily for self-employed people (including sole traders, partners in a business partnership, or Lloyd’s underwriters). They help build entitlement to certain contributory benefits, such as the State Pension, Maternity Allowance, and Bereavement Support Payment. Below is a comprehensive summary based on HMRC guidance for the 2024-25 tax year (6 April 2024 to 5 April 2025). Note that significant reforms took effect from April 2024: Class 2 NICs are no longer mandatory for most self-employed individuals but can be credited or paid voluntarily to protect your National Insurance record.

Key Rates and Thresholds for 2024-25

  • Rate: £3.45 per week (flat rate, not profit-based).
    • This equates to approximately £179.40 for a full tax year (based on 52 weeks; calculations may occasionally reference 53 weeks in maximum contribution tests, but standard is 52).
  • Small Profits Threshold (SPT): £6,725.
    • If your taxable profits (after allowable expenses and deductions) are £6,725 or more: Class 2 NICs are treated as paid automatically. You do not need to pay anything, but you still receive a qualifying year for benefits like the State Pension.
    • If your taxable profits are below £6,725 (or you make a loss): No Class 2 NICs are required, but you can choose to pay them voluntarily to gain a qualifying year and protect your entitlement to benefits.
  • No Upper Threshold: Unlike Class 4 NICs, Class 2 is not scaled by higher profits—it’s either credited (no payment) or voluntary (flat rate).

These thresholds and rates apply UK-wide (including Scotland). For 2025-26, the rate increases to £3.50 per week and the threshold to £6,845, but this does not affect 2024-25 returns.

Eligibility and Who Must/Should Pay

  • Mandatory Payment: None for 2024-25—reforms abolished compulsory Class 2 payments. If profits are £6,725 or above, contributions are credited without payment.
  • Voluntary Payment: Recommended if profits are below £6,725 and you want to maintain your National Insurance record for benefits. This is particularly important if you’re close to State Pension age or rely on contributory benefits. You must be registered as self-employed with HMRC for voluntary payments to count (even if not filing a tax return).
  • Special Cases:
    • Employed and Self-Employed: If you pay Class 1 NICs through employment, you may pay reduced or no Class 2, depending on your total contributions. However, you still need to pay Class 2 during temporary self-employment breaks if you intend to resume (e.g., writers’ block or seasonal work).
    • Foster Carers/Shared Lives Carers: Treated as self-employed; same rules apply based on qualifying care receipts.
    • Rent-a-Room Scheme Participants: If using this for income from letting furnished rooms, it counts as self-employment; apply thresholds to profits.
    • Overseas or Remittance Basis Users: If all business is abroad and on remittance basis, limited reporting; otherwise, full rules apply.
    • Exemptions/Exclusions: Certain groups (e.g., examiners, ministers of religion without salary, or property investors without active trading) may pay voluntary Class 2 outside Self Assessment. You cannot pay if under 16 or over State Pension age at the tax year start.

If you’re not eligible for crediting and don’t pay voluntarily, you won’t get a qualifying year, which could affect your State Pension (you need 35 qualifying years for the full new State Pension).

How Class 2 NICs Are Calculated and Paid

  • Calculation:
    • In your Self Assessment tax return (SA103S short form for turnover <£90,000 or SA103F full form otherwise), indicate voluntary payment by putting an ‘X’ in:
      • Box 36 (short form).
      • Box 100 (full form).
    • This triggers inclusion in your tax calculation (SA110). The flat rate (£3.45/week) is multiplied by the number of weeks in the tax year (typically 52, totaling ~£179.40).
    • If profits >=£6,725, no amount is due (shown as £0 in calculations).
    • Maximum Contributions Test: If your total NICs (Class 1 from employment + Class 2 + Class 4) exceed a cap (e.g., ~£5,000 for 2024-25, based on 53 weeks of maximum Class 1/4 rates), you may get a refund or reduction. This is rare but calculated in SA110 Section 15.
  • Payment:
    • Paid via Self Assessment alongside income tax and Class 4 NICs (due by 31 January 2026 for online filing).
    • If not filing a return (e.g., profits <=£1,000 under trading income allowance and no other reasons to file), contact HMRC directly to pay voluntarily.
    • Deadline Note: You cannot pay voluntary Class 2 through Self Assessment after 31 January 2026. Late payments may require direct arrangement with HMRC.
    • Registration: Must register as self-employed via www.gov.uk/register-for-self-assessment/self-employed if not already done (even for voluntary payments).
  • Integration with Tax Calculation:
    • In SA110 (Tax Calculation Summary), Class 2 is handled in Section 15.
    • Copy the calculated amount to Box 4.1 on the summary pages.
    • If voluntary, it’s added to your total tax bill.

Benefits and Why Pay Voluntarily

  • Qualifying Year: Each year of Class 2 (paid or credited) counts toward:
    • State Pension (basic or new).
    • Maternity Allowance.
    • Bereavement Support Payment.
    • Contributory Employment and Support Allowance.
  • Gaps in Record: Voluntary payments fill gaps, especially useful if profits fluctuate or you’re part-time self-employed.
  • No Impact on Tax: Class 2 doesn’t affect your income tax liability—it’s separate.

Changes for 2024-25

  • Reform from April 2024: Class 2 became non-mandatory. Previously (2023-24), it was payable if profits exceeded £6,725. Now, it’s credited without payment above the threshold, reducing admin for higher earners. This was announced in the 2023 Autumn Statement to simplify self-employment taxes.
  • No Retrospective Changes: Applies only from 2024-25 onward.

Additional Notes

  • If You Stopped/Started Self-Employment: Prorated based on weeks traded; notify HMRC via www.gov.uk/stop-being-self-employed to adjust.
  • Records: Keep evidence of profits/expenses for 5 years after filing (or longer if queried).
  • Help and Issues: Use Helpsheet HS222 for profit calculations. If software glitches occur (e.g., as reported in November 2025 for tax returns), HMRC has resolved them—file as normal.
  • For more: Visit www.gov.uk/self-employed-national-insurance-rates or contact HMRC Self Assessment helpline (0300 200 3310).

If your situation involves combined employment/self-employment or specific benefits claims, consult HMRC or a tax adviser for personalized advice.