Key Changes in National Insurance for Self-Employed Individuals Starting April 2024

Important changes are coming to National Insurance contributions starting April 2024. It’s essential to understand these changes to plan effectively for your financial future.

The End of Class 2 Contributions

Traditionally, if you’re self-employed, you’re likely paying two types of National Insurance: Class 2 and Class 4. However, from April 2024, Class 2 contributions will be discontinued. Let’s explore the implications of this change.

What are Class 2 Contributions?

Class 2 contributions are a fixed weekly amount paid by self-employed individuals, helping them accrue entitlements to the state pension and other benefits. For the tax year 2023/24, these contributions are triggered when annual profits exceed £12,570. If your profits fall between £6,725 and £12,570, you’re credited with a qualifying year towards your state pension without any payment.

For those with profits below £6,725, Class 2 contributions are optional but provide a cost-effective way to maintain state pension entitlements, compared to the more expensive Class 3 contributions.

Transition to Class 4 Contributions

With the phasing out of Class 2 contributions, Class 4 contributions will become more prominent. These are based on your profits and are applicable at different rates depending on your earnings bracket. For the tax year 2024/25, the main Class 4 rate is set at 8% on profits between the lower and upper profit limits of £12,570 and £50,270, respectively.

State Pension and Benefits Beyond 2024

Post-April 2024, self-employed individuals will continue to accrue pension and benefit entitlements through Class 4 contributions, once their earnings exceed £12,570. Those with profits between £6,725 and £12,570 will still receive a National Insurance credit, ensuring their entitlement to state pension and benefits without the need for actual payment.

For individuals earning less than £6,725, voluntary Class 2 contributions at the 2023/24 rate of £3.45 per week remain an option, offering a more economical choice than Class 3 contributions.

 

 

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