If their profits are high enough, the self-employed pay two classes of National Insurance contribution \u2013 Class 2 and Class 4.<\/p>\n
Class 2 contributions are flat rate contributions of \u00a33.15 per week for 2022\/23. It is the payment of Class 2 contributions that enables a self-employed earner to build up entitlement to the state pension and certain other contributory benefits. Class 4 contributions are payable on profits in excess of the lower profits limit, but do not garner any pension or benefit entitlement.<\/p>\n
Lower profits limit for Class 4<\/strong><\/p>\n The lower profits limit for Class 4 contributions is aligned with the primary threshold for Class 1 National Insurance contributions. This is set at \u00a3190 per week for the period from 6 April 2022 to 5 July 2022 (equivalent to \u00a39,880 per year), rising to \u00a3242 per week (equivalent to \u00a312,570 per year and aligned with the personal allowance) from 6 July 2022. The annualised primary threshold is \u00a311,908. Consequently, the lower profits limit for Class 4 is set at \u00a311,908 for 2022\/23.<\/p>\n Class 4 contributions are payable at the main rate, which is 10.25% for 2022\/23, on profits between the lower profits limit and the upper profits limit, which at \u00a350,270 is aligned with the upper earnings limit for Class 1 contributions. Any profits in excess of the upper profits limit attract Class 4 contributions at the additional Class 4 rate, set at 3.25% for 2022\/23.<\/p>\n Higher starting point for Class 2<\/strong><\/p>\n Historically, a liability to Class 2 contributions has arisen where profits exceed the small profits threshold, which for 2022\/23 is set at \u00a36,725. However, the starting point for Class 2 contribution is to be increased with retrospective effect from 6 April 2022 to align it with the starting point for Class 4 contributions. For 2022\/23, this is \u00a311,908.<\/p>\n As Class 2 contributions earn entitlement to the state pension, self-employed earners who have profits between the small profits threshold, set at \u00a36,725 for 2022\/23, and the new starting limit of \u00a311,908 will be treated as if they had paid a Class 2 contribution. This means they get the benefit of having paid a Class 2 contribution, but for zero contribution cost. This move brings the position of the self-employed with low profits broadly into line with that for employed earners with low earnings who are treated as having paid Class 1 contributions at a notional zero rate on earnings between the lower earnings limit (\u00a36,396 for 2022\/23) and the primary threshold (\u00a311,908 for 2022\/23).<\/p>\n Self-employed earners with profits below the small profits threshold can opt to pay Class 2 contributions voluntarily to maintain their contribution record. At \u00a33.15 per week for 2022\/23, this is a much cheaper option that paying voluntary Class 3 contributions, which are set at \u00a315.85 for 2022\/23.<\/p>\n Looking ahead<\/strong><\/p>\n The Class 4 rates were increased by 1.25 percentage points for 2022\/23 only pending the introduction of the Health and Social Care Levy. The rates are due to revert to 9% (main rate) and 2% (additional rate) from 2023\/24. However, the self-employed will also have to pay the Health and Social Care Levy of 1.25% on profits in excess of the lower profits limit from 2023\/24, so the total hit remains the same in 2023\/24 as in 2022\/23. However, unlike Class 4 contributions, liability to the Health and Social Care Levy remains beyond state pension age.<\/p>","protected":false},"excerpt":{"rendered":" If their profits are high enough, the self-employed pay two classes of National Insurance contribution \u2013 Class 2 and Class 4. Class 2 contributions are flat rate contributions of \u00a33.15 per week for 2022\/23. It is the payment of Class 2 contributions that enables a self-employed earner to build up entitlement to the state pension…<\/p>","protected":false},"author":1,"featured_media":221192,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-215249","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-3","description-off"],"yoast_head":"\n