National Insurance

Most self-employed people are required to pay Class 4 National Insurance contributions (NICs) if their profits are £12,570 or more a year.

Class 4 NIC rates for the tax year 2024-25 are 6% (2023-24: 9%) for chargeable profits between £12,570 and £50,270 plus 2% on any profits over £50,270.

A number of categories of people are exempt from paying Class 4 NICs, these include:

• People under the age of 16 at the beginning of the year of assessment.
• People over State pension age at the beginning of the year of assessment. A person who attains State pension age during the course of the year of assessment remains liable for Class 4 NICs for the whole of that year.
• Trustees, guardians etc of an incapacitated person are exempted from Class 4 NICs on that income.

The Class 4 NIC rate is lower than the corresponding rate for employees who pay National Insurance at 8% on the same income levels. Both the employed and self-employed pay 2% National Insurance contributions on income above the higher rate threshold.

Carer’s credit is a National Insurance credit that can help carers to fill gaps in their National Insurance record. Carers who don’t qualify for Carer’s Allowance may qualify for Carer’s Credit. This may also help carers increase their State Pension entitlement.

The Carer’s Credit is available to qualifying applicants caring for one or more people for at least 20 hours per week. A carer’s income, savings or investments do not affect their eligibility for Carer’s Credit. The carer must also be aged 16 or over and under the State Pension age to qualify.

The person the carer is looking after must usually receive one of the following benefits:

• Personal Independence Payment – daily living component
• Disability Living Allowance – the middle or highest care rate
• Attendance Allowance
• Constant Attendance Allowance at or above the normal maximum rate with an Industrial Injuries Disablement Benefit
• Constant Attendance Allowance at the basic (full day) rate with a War Disablement Pension
• Armed Forces Independence Payment
• Child Disability Payment – the middle or highest care rate
• Adult Disability Payment – daily living component at the standard or enhanced rate

If the person being cared for is not receiving one of the qualifying benefits, the Department for Work and Pensions (DWP) will consider whether the level of care provided is appropriate to still qualify for Carer's Credit. The DWP will usually consider the level of care as appropriate if there is a signed care certificate confirming this from a health or social care professional. 

There is an online service available on HMRC to check your National Insurance Contributions (NIC) record online. The service is available at https://www.gov.uk/check-national-insurance-record

In order to use this service, you will need to have a Government Gateway account. If you do not have an account, you can apply to set one up online.

By signing in to the 'Check your National Insurance record' service you will also activate your personal tax account if you have not already done so. HMRC’s personal tax account can also be used to complete a variety of tasks in real time such as claiming a tax refund, updating your address and completing your self-assessment return.

Your National Insurance record online will let you see:

• What you have paid, up to the start of the current tax year (6 April 2023).
• Any National Insurance credits you have received.
• If gaps in contributions or credits mean some years do not count towards your State Pension (they are not 'qualifying years')
• If you can pay voluntary contributions to fill any gaps and how much this will cost

In some circumstances it may be beneficial, after reviewing your records, to make voluntary NIC contributions to fill gaps in your contributions record to increase your entitlement to benefits, including the State or New State Pension. If you would like to discuss this further, please do not hesitate to be in touch.

As had been widely expected, the Chancellor announced further changes to National Insurance contributions (NIC) rates for employees and the self-employed.

There will be a further 2% cut in the main rate of Employee National Insurance from 6 April 2024. This will see Class 1 NICs reduced by 2% from 10% to 8%. This is on top of the earlier reduction, announced as part of the Autumn Statement measures, which reduced Class 1 NICs from 12% to 10% on 6 January 2024. When both of these changes are taken together, the Treasury say this will save the average worker on £35,400 over £900 a year.

The Chancellor also announced that the main rate of self-employed National Insurance, Class 4 NICs, on all earnings between £12,570 and £50,270 will be cut by a further 2%, from 8% to 6% from April 2024.

This is in addition to the previous announcement in the Autumn Statement that the current rate of Class 4 NICs would be reduced from the current 9% to 8% from 6 April 2024. Taken together this means that the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6% from April. Combined with the previously announced abolition of the requirement to pay Class 2 NICs from 6 April 2024, this will save an average self-employed person making profits of £28,000 approximately £650 NIC a year.

Taken together these cuts mean:

• A hard-working family with two earners on the average salary of £35,400 each will be better off by £1,826.
• An average full-time nurse on £38,900 will be better off by £1,053.
• A senior nurse with five years experience on £42,618 will be better off by £1,202.
• The average police officer on £44,300 will be better off by £1,270.
• A cleaner working night shifts on £21,058 will be better off by £340.
• A typical junior doctor on £65,000 will be better off by £1,508.
• A typical self-employed plumber on £34,361 will be better off by £846.
• The typical teacher on £44,300 will be better off by over £1,270.

Class 1A NICs are paid by employers in respect of most benefits in kind provided to employees such as a company car. Class 1A NICs are also due on charge on termination awards above a £30,000 threshold that have not already been subjected to Class 1 NICs deductions. There’s no employee contribution payable for Class 1A NICs.

Class 1A NICs are due in respect of most benefits provided to:

• directors and certain other persons in controlling positions;
• employees; and
• members of the family or households of the above.

Where a benefit is provided as part of salary sacrifice or other optional remuneration arrangement (OpRA), special rules apply and the Class 1A NICs are calculated as a percentage of the relevant amount.

Certain conditions must apply before Class 1A NICs are due. These conditions are that the:

• benefit must be from, or by reason of, an employee's employment and must be chargeable to Income Tax under ITEPA 2003 on an amount of general earnings as defined at Section 7(3) ITEPA 2003;
• employment must be 'employed earner’s employment' under social security law and employment as a director or an employee;
• benefit must not already attract a Class 1 NICs liability.

There is a statutory exemption for qualifying trivial benefits in kind costing £50 or less in kind. The tax-free exemption applies to small non-cash benefits like a bottle of wine, or a bouquet of flowers given occasionally to employees or any other BiK classed as 'trivial' that falls within the exemption. An annual cap of £300 is applicable for directors or other office-holders of close companies and to members of their families or households.

If you have reached the State Pension age and continue to work, in most cases, you no longer need to pay National Insurance Contributions (NICs).

At State Pension age, the requirement to pay Class 1 and Class 2 NICs ceases. However, you will remain liable to pay any NICs due to be paid to you before reaching the State Pension age. If you continue working, you need to provide your employer with proof of your age.

Your employer remains liable to pay secondary Class 1 employer NICs. If you would rather not provide proof of age to your employer, you can request a letter (known as an age exception certificate) from HMRC confirming you have reached State Pension age and are no longer required to pay NICs.

If you are self-employed you will need to pay Class 4 NICs for the remainder of the year in which you reach State Pension age but will be exempt from the following year.

HMRC provides the following example. Someone who reached the State Pension age on 6 September 2023 will stop making Class 4 contributions on 5 April 2024 and pay their final Class 4 bill by 31 January 2025, together with any Income Tax due.

If you have overpaid NICs you can claim the excess back from HMRC.

A reminder that the main rate of Class 1 Employee National Insurance contributions (NIC) will be reduced from 6 January 2024. This change will see Class 1 NICs reduced by 2% from 12% to 10% in a change set to benefit some 27 million employees.

This reduction will only apply to annual earnings between £12,570 and £50,270, meaning that the maximum saving is £754 a year. The average worker bringing home £35,400 will be £450 better off. As the Class 1 NIC rate will be reduced from 6 January 2024, employees will see a benefit before the start of the next tax year. Usually, such changes would only take effect from the start of the new tax year.

The policy paper released by HM Treasury on these changes also highlighted further examples of the savings this will create. We have listed these examples below.

• A senior nurse with 5 years of experience on £42,618 will receive an annual gain of £600.
• An average full-time nurse on £38,900 will receive an annual gain of over £520.
• An average police officer on £44,300 will receive an annual gain of over £630.
• A typical junior doctor on £63,000 will receive an annual gain of over £750.
• A cleaner working night shifts on £21,000 will receive a gain of £170.
• A typical self-employed plumber on £34,400 will receive an annual gain of £410.
• An average teacher on £44,300 will receive an annual gain of over £630.
• A hard-working family with 2 earners on the average earnings of £35,404 will be £900 better off.

In the recent Autumn Statement, the Chancellor announced two important changes to National Insurance contributions (NIC) for the self-employed.

The first change concerns the removal of Class 2 NICs for the self-employed. This means that self-employed people with profits above £12,570 will no longer be required to pay Class 2 NICs from 6 April 2024. Class 2 NICs are currently paid by the self-employed in order to qualify for benefits such as the state pension.

This change effectively abolishes Class 2 NICs for some two million self-employed people. The self-employed benefitting from this change will continue to receive access to contributory benefits including the State Pension.

Those currently paying Class 2 NICs voluntarily will still be able to do so at the same rate. This includes those with profits under £6,725 (Small Profits Threshold) and others who pay Class 2 NICs voluntarily to access contributory benefits including the State Pension. The weekly rate for making voluntary Class 2 NICs will be frozen at the current rate of £3.45 for 2024-25, rather than rising by CPI to £3.70. The Small Profits Threshold will also remain frozen at £6,725 for 2024-25.

Secondly, the Chancellor announced that the main rate of self-employed National Insurance, Class 4 NICs, on all earnings between £12,570 and £50,270 will be cut by 1%, from 9% to 8% from April 2024. This is worth £350 for the average self-employed person on £28,200.

In the recent Autumn Statement, the Chancellor announced a significant change to National Insurance contributions (NIC) for employees.

There will be a cut in the main rate of Employee National Insurance from 6 January 2024. This will see Class 1 NICs reduced by 2%, from 12% to 10%, in a change set to benefit some 27 million employees.

This reduction will only apply to annual earnings between £12,570 and £50,270, meaning that the maximum saving is £754 a year. Average earners, bringing home £35,400, will be £450 better off. As the main rate will be reduced from 6 January 2024, employees will, unusually, see a benefit before the start of the next tax year.

The policy paper released by HM Treasury on these changes also highlighted further examples of the savings that this change will create. We have listed these examples below.

• A senior nurse with 5 years of experience on £42,618 will receive an annual gain of £600.
• An average full-time nurse on £38,900 will receive an annual gain of over £520.
• An average police officer on £44,300 will receive an annual gain of over £630.
• A typical junior doctor on £63,000 will receive an annual gain of over £750.
• A cleaner working night shifts on £21,000 will receive a gain of £170.
• A typical self-employed plumber on £34,400 will receive an annual gain of £410.
• An average teacher on £44,300 will receive an annual gain of over £630.
• A hard-working family with 2 earners on the average earnings of £35,404 will be £900 better off.

National Insurance credits can help qualifying applicants to fill gaps in their National Insurance record. This can assist taxpayers to build up the number of qualifying years of National Insurance contributions and which can increase the amount of benefits a person is entitled to, such as the State Pension.

This could happen if someone were:

• employed but had low earnings;
• unemployed and were not claiming benefits;
• self-employed but did not pay contributions because of small profits; and
• living or working outside the UK.

National Insurance credits are available in certain situations where people are not working and therefore, not paying National Insurance credit. For example, credits may be available to those looking for work, who are ill, disabled or on sick pay, on maternity or paternity leave, caring for someone or on jury service.

Depending on the circumstances, National Insurance credits may be applied automatically or an application for credits may be required. There are two types of National Insurance credits available, either Class 1 or Class 3. Class 3 credits count towards the State Pension and certain bereavement benefits whilst Class 1 covers these as well as other benefits such as Jobseeker’s Allowance.

Taxpayers may also be able to pay voluntary contributions to fill any gaps if they are eligible.