What Is Class 2 National Insurance?

If you're self-employed in the UK, you may have heard of Class 2 and Class 4 National Insurance contributions. These payments go towards building your entitlement to benefits like the State Pension and Maternity Allowance.

From April 2024, changes to the rules mean that Class 2 NICs are no longer mandatory for most self-employed workers. However, understanding when and why you might still pay them is important for your long-term financial planning.

What Types of National Insurance Do You Pay if You’re Self-Employed?

Self-employed individuals typically pay:

• Class 2 National Insurance – A flat weekly rate (mainly for pension and benefit entitlement)

• Class 4 National Insurance – A percentage of profits (similar to income tax)

These are paid through the Self Assessment system and apply depending on your income.

What Is Class 2 National Insurance?

Class 2 NICs are a flat-rate contribution paid by self-employed people with profits above the Small Profits Threshold. The main purpose is to secure access to benefits such as:

• The State Pension

• Maternity Allowance

• Bereavement Support Payment

As of the 2024–25 tax year, Class 2 contributions are no longer compulsory for most self-employed workers earning above the lower profits threshold, but many may still choose to pay voluntarily.

Who Needs to Pay Class 2 NICs?

Until April 2024, Class 2 NICs were paid by self-employed people earning more than £6,725 per year. As of the new tax year:

• If you earn between £6,725 and £12,570, your entitlement to benefits is protected without paying anything

• If you earn below £6,725, you can pay voluntarily to build qualifying years

• If you earn above £12,570, you no longer need to pay Class 2 NICs, but your entitlement is still protected through your Class 4 contributions

Voluntary Class 2 NICs cost £3.45 per week for 2024–25.

Who Needs to Pay Class 4 NICs?

Class 4 NICs are based on annual profits and are paid through your tax return. These do not count towards benefit entitlements like the State Pension.

For 2024–25, the rates are:

• 9% on profits between £12,570 and £50,270

• 2% on profits above £50,270

Paying Your NICs

Both Class 2 and Class 4 NICs are calculated automatically when you file your Self Assessment return. If you're self-employed, HMRC will include your NICs in your tax bill due by 31 January following the end of the tax year.

If you need to make voluntary contributions, you must notify HMRC and arrange payment separately.

Exemptions from Class 2 NICs

You may be exempt from Class 2 NICs if:

• Your self-employed income is below £6,725

• You are employed and self-employed, and your total NICs exceed the annual limit

• You claim certain benefits, such as Universal Credit or Carer’s Allowance

• You live abroad and qualify for National Insurance exemptions under international agreements

Even if exempt, you can choose to pay voluntary contributions to protect your record.

Are There Any NIC Changes in April 2024?

From 6 April 2024, the government:

• Scrapped mandatory Class 2 NICs for self-employed people earning over the lower profits threshold

• Introduced automatic crediting of qualifying years for pensions for those earning between £6,725 and £12,570

• Allowed low earners to continue paying Class 2 NICs voluntarily at the flat rate of £3.45 per week

These reforms aim to simplify the system and reduce the tax burden for small business owners and low-income self-employed individuals.

Final Thoughts

Class 2 National Insurance used to be a key payment for self-employed people to qualify for the State Pension and other benefits. From April 2024, most will no longer need to pay it, but your entitlement will still be protected.

If you're earning under the threshold, consider whether paying voluntary Class 2 NICs makes sense for you. It’s a relatively small amount but can make a big difference to your State Pension eligibility. Always check with HMRC or a tax adviser if you're unsure about your National Insurance status.