2 - National Insurance Contributions (C)

Question 1

Which class of NICs contributes to state benefits? 2 or 4?

Answer 1

Only class 2 contributions give entitlement to contributory State benefits, such as the new State Pension.

Class 4 NICs do not provide any benefit so it is important to ensure that class 4 NICs are not paid unnecessarily.

Question 2

Why would a self-employed person elect to pay class 2 NICs if they don’t need to (for example, they have earned less than the small profits threshold.

Answer 2

To maintain the contribution record for State benefits

Question 3

What is the small profits threshold where class 2 NICs do not need to be paid?

Answer 3

£6,725

Question 4

What is the weekly flat rate of class 2 NICs?

Answer 4

£3.45

Question 5

What is the maximum amount of class 4 NICs payable at the main rate?

Answer 5

£3,393.00 (£50,270 – £12,570) × 9%

Question 6

What is the main rate of class 4 NICs and when is it paid?

Answer 6

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

Question 7

What is the additional rate on earnings above upper limit for class 4 NICs?

Answer 7

2%

Question 8

When are class 2 and 4 NICs due to be paid?

Answer 8

2 = January after the tax year starts (i.e., January 2024 for 2023/24 tax year)
4 = paid with income tax, subject to those rules

Question 9

If you are both overseas and self-employed; who has to pay what when it comes to class 2 and 4 NICs?

Answer 9

2 if you’re usually resident in UK, if not, the contributions may be voluntary
4 if you’re definitely UK resident

Question 10

Are the self-employed entitled to National Insurance (NI) credits if there earnings are too low to pay class 2 NICs?

Answer 10

No, but they can make voluntary contributions instead

Question 11

Class 4 NICs are paid by whom and why?

Answer 11

Taxable profits of a self-employed individual.

Question 12

How much in class 2 NICs is paid at certain profit levels?

Answer 12

Profits over £12,570 - must be paid
Profits between £12,570 and £6,725 - deemed paid
Profits less than £6,725 - no need to pay, but can voluntarily

Question 13

What are the rates of annual maxima?

Answer 13

Class 1 + 2 = £4335.50
Class 2 + 4 = £3,572.40

Question 14

If someone is both employed and self-employed, what is the maximum class 4 NICs payable, less the class 1 NICs?

Answer 14

£3,393 less class 1 NICs