The Pain of Class 2 National Insurance

A change in tactic in my blog post today and hopefully going forward.  Once a month, I’m hoping to post a technical accounting or tax related post.  At the moment, I have no schedule for it and it will most likely be on what takes my fancy or what I had to deal with in that month.  So, for today, I’m going to look at national insurance and  in particular Class 2 NIC.

National insurance contributions came about when the state decided, under the National Insurance Act 1911, that they could use this contribution to help look after the old, with state pension, the low paid and the ill with free basic healthcare.   There are now six different national insurance  classes.

When you decide to become self-employed, you have to inform HMRC in two different departments.  You have to register for your national insurance, as national insurance is not classed as a tax and for your self-assessment tax. This can be done online by following this link 

The two national insurance contributions you pay when you’re self-employed are:

Class 2 if your profits are above £5,965 a year

Class 4 if your profits are above £8,060 a year

When you do your self-assessment tax return, your class 4 national insurance gets calculated (if the conditions apply) and included with the rest of your income tax liability.  Starting from this year, your Class 2 National insurance has also been incorporated into your self-assessment return but for anyone who became self-employed before 6th April 2015, you would have needed to pay this separately.

The best thing about having your taxes altogether is there is less chance of it being forgotten or mistaken for another tax. All HMRC letters look very similar and can end up merging into one in your mind.  However, one of the biggest downfalls for now is for the recently self-employed pregnant woman.  The process of trying to get your maternity leave payment on time has just got even more complicated.

If your pregnant and self-employed and earning at least £30 a week for at least 13 weeks or more within the 66 weeks before your baby is due, you are entitled to receive maternity allowance payment of up to £5,443.62 by paying £36.40 in Class 2 national insurance.  However, in order to receive this on time, you have to send in you MATB1 form in to DWP who then inform HMRC who then say you have not paid enough Class 2 NI and are then given the option to pay your class 2 NI. You can’t just voluntarily pay your class 2 NI with a few exceptions. A good article about this by Rebecca Cave, can be found here.

By paying your Class 2 National Insurance, you can claim maternity allowance.  The other benefits you can get are basic and new state pension; contributions based employment and support allowance; and bereavement allowance.

The full list of National Insurance classes, as taken from the HMRC website is as below:

The class you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.

National Insurance class Who pays
Class 1 Employees earning more than £155 a week and under State Pension age – they’re automatically deducted by your employer
Class 1A or 1B Employers pay these directly on their employee’s expenses or benefits
Class 2 Self-employed people – you don’t have to pay if you earn less than £5,965 a year (but you can choose to pay voluntary contributions)
Class 3 Voluntary contributions – you can pay them to fill or avoid gaps in your National Insurance record
Class 3A Voluntary contribution – you may be able to top up your pension with a single lump sum if you’re due to retire before 6 April 2016
Class 4 Self-employed people earning profits over £8,060 a year

For more information on this or for help with your tax returns, get in touch with Q.A. Accountancy Services.

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