Self-employed individuals in the UK are currently paying two Classes of National Insurance – Class 2 and Class 4.
Class 2 describes a weekly rate of £2.85, which is paid if profits exceed £6,025 per year. This earns the self-employed the right to the state pension and certain benefits.
Class 4 describes a further tax on profits in which the self-employed pay tax of 9% if their profit is between £8,174 and £45,000 and tax of 11% if their profit is above £45,000. This class offers no benefit entitlement.
What is changing?
As of April 2018 Class 2 contributions are being scrapped and Class 4 contributions are being reformed in order to provide benefits to the self-employed.
The new Class 4 will involve annual payments through the self-assessment system and a new small profits limit will be introduced. Profits falling between the small profit and lower profit limit of £8,174 will have a zero rate applied. However, the self-employed falling under into this bracket will still be able to receive a state pension and benefits rights.
The tax rate will remain the same for self-employed with profits between the lower (£8,174) and higher(£45,000) categories.
How will I benefit?
All self-employed individuals will no longer pay a weekly rate, instead their payments will occur annually.
If you are profiting less than £8,174 not only will you have a zero rate but you will also be eligible for a state pension and benefits.