Proposed changes to class 2 National insurance contributions – will this affect you?

From 6 April 2019 the way that class 2 national insurance contributions (NIC) will be assessed will be changing and there will be winners and losers.

Currently most class 2 NICs are paid by way of your self-assessment tax return and have to be paid by 31 January following the year to which they relate to make that year count as one of the paid up year to establish entitlement to state pension.

From 6 April 2019 the current proposals are that contributions will continue to be paid through the self-assessment tax return or its successor but will be class 4 NICs. If your self-employment taxable profits are between the lower earnings limit (£6,032) and the point at which NICs start to be paid at a positive rate (£8,424), using 2018/19 for this example, you will pay a 0% rate but be credited with a qualifying year. So individuals in this range will save £153.40 based on current rates.

Above £8,424 the rate will be 9%, the current rate of class 4 national insurance. And if over £46,350 2%.

But the losers will be those with small earnings, less than £6,032 who currently chose to pay class 2 NIC voluntarily to make it a qualifying year. They will no longer be able to do so. Instead they will have to pay class 3 voluntary contributions. The current rate is £761.80 per annum!

So if you have small earnings in 2018/19 it may well pay to make the class 2 NIC payment ‘while stocks last’.

But before paying class 2, do check your national insurance record through your personal tax account to see if you already have enough qualifying years. Currently 35 years worth of contributions are required to get a full flat rate state pension (currently £164.35 per week).