Self-employed National Insurance: How to pay Class 2 National Insurance Contributions (NIC)
28th September 2016
If self-employed National Insurance affects you, then you may have noticed some changes to how you pay Class 2 NIC Contributions. Previously these would have been paid either through direct debits from your bank or building society account or via quarterly demands. However, last year you may have spotted these payments disappearing from your monthly outgoings. That doesn’t mean that they don’t need to be paid! Going forward, your liabilities for Class 2 NIC will be calculated from your Self Assessment Tax Return and will need to be paid for alongside your Income Tax. With Self Assessment deadlines looming, you may be confused about how to go about it. No need to panic! We explain exactly how these payments will be dealt with going forward for those affected by the changes for self-employed National Insurance contributions.
Who pays Class 2 NIC?
Self-employed individuals typically pay 2 classes of National Insurance:
- Class 2 National Insurance if annual taxable profits exceed £5,965 (the small profits threshold), payable at a rate of £2.80 per week
- Class 4 National Insurance if annual taxable profits exceed £8,060, payable at a rate of 9% on profits between £8,060 and £43,000 and 2% on profits over £43,000
Class 2 National Insurance can also, in some circumstances be paid voluntarily by those living and working abroad.
How has payment changed?
Previously Class 2 NICs were typically billed every three months or taken via monthly direct debit. Now, instead of paying via direct debit, you will need to pay your calculated Class 2 NIC liability together with the Income Tax calculated on your Self Assessment Tax Return.
There is now no need to submit a small earnings exemption request to HM Revenue and Customs. Instead, when your Tax Return is prepared, if your taxable earnings are below the small profits threshold of £5,965, HM Revenue and Customs will automatically calculate that you have no Class 2 NIC to pay.
It is also worth noting that, if you are under the small profits threshold, you can still opt voluntarily to pay Class 2 NIC in order to protect certain benefits and your State Pension. This can be done simply by ticking a box on your Tax Return.
How do I calculate how much to pay?
Your Class 2 contributions will automatically be calculated alongside your Income Tax liabilities by HMRC following submission of Self Assessment.
Class 2 NIC is currently set at £2.80 per week for both the 2016/2017 and 2015/2016 tax years, and will be payable as soon as your taxable profits exceed the £5,965 threshold.
Your deadline for online Self Assessment Returns is 31st January 2017, or 31st October 2016 for postal returns. In all instances however, leaving it until the last minute is never a good idea!
How do I pay?
You will pay your Class 2 NICs at the same time and via the same method as your Income Tax liabilities as part of your Self Assessment Return. At TTR Barnes we advise you to start budgeting now and to set aside funds each month. We can help you with this or alternatively you can set up a budget payment plan through HMRC, allowing you to spread the cost of your Income Tax, Class 4 and Class 2 NICs before the Self Assessment deadline.
Are there any exclusions?
There are some professions that are excluded from paying through self-assessment and who will receive a bill directly from HMRC in October. These include:
- examiners, moderators, invigilators or people who set exam questions
- those running businesses involving land or property
- ministers of religion who don’t receive a salary or stipend
- those living abroad and paying voluntary Class 2 contributions
- people who make investments – but not as a business and without getting a fee or commission
- non-UK residents who are self-employed in the UK
- those working abroad
Future Changes
HMRC have indicated that self-employed national insurance Class 2 NIC will be abolished from April 2018. Class 4 NIC will be reformed, and will enable self-employed individuals to continue to build entitlement to their State Pension and other benefits.
The easiest way of ensuring accurate Class 2 NIC calculations is by preparing a correct and comprehensive Self Assessment Return as part of your self-employed national insurance commitments. With paper and online submission deadlines looming, it is time to start thinking about getting yours together now. At TTR Barnes we are able to assist fully with the Self Assessment process and can advise you of your liabilities for Class 2 NIC and other areas such as Income Tax to allow you to prepare and budget for your payment to HMRC. Contact one of our team to understand how we can help you further.
All information correct at time of publication September 2016
