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In the Autumn Statement, the Chancellor announced changes to the way National Insurance Contributions (NIC) are applied to the self employed, including partners.

There are two classes of National Insurance that are currently paid by the self employed: Class 4, which is calculated through the Self Assessment tax return and Class 2, which has been amended over the last few years, and which maintains the self employed entitlement to some State Benefits and State Pensions.

The rate of Class 4 NIC is reducing from 9% to 8% from 6 April 2024 but the effect will not be seen until the tax payment due on 31 January 2026.  This is charged on all profits between (currently) £12,570 and £50,270. If your profit exceeds £50,270, then Class 4 NIC is charged at 2% and this is not changing.

The changes to Class 2 NIC are more complex. Using the current rates, the effect is as follows:

• People with a taxable profit above £6,725 will not have to pay any Class 2 NIC, but they will receive a credit for State Pension and contributory benefit purposes
• People with a taxable profit below £6,725 will not receive a credit for State Pension purposes unless they make voluntary payments of Class 2 NIC at the rate of £3.45 per week

Calculations suggest that on a taxable profit of £28,000, these changes will save each self employed person about £350. If your profits are higher, the maximum saving is likely to be around £556 per person.

There will be a further review of Class 2 NIC in 2024.  The Government wants to ensure that the interests of the self employed with profits under £6,725 will be protected and ensure that they are able to maintain their entitlement to contributory benefits and the State Pension.  We, at David Allen, will be watching progress in this area carefully and ensuring that any updates are passed on to our clients.

Should you have any questions with regards to these changes, our team would be happy to help, contact us via the form below or call on 01228 711888 or 01387 270340.