How to claim work from home tax relief in the UK

When you’re self-employed in the UK, understanding your National Insurance contributions (NICs) is critical for both compliance and for securing your future benefits such as the State Pension. For the 2023-24 tax year, the HMRC highlights two primary classes of NICs that self-employed individuals need to be familiar with: Class 2 NICs and Class 4 NICs. Here’s a quick reference of what these contributions mean for you.

What are Class 2 NICs?

Class 2 National Insurance Contributions are payable by almost all self-employed individuals. However, if you earn under the Small Profits Threshold (SPT), which is currently set at £6,725 for the 2023-24 tax year, you are exempt from these payments.

Key Features:

  • Rate: The flat weekly rate for Class 2 NICs is £3.45.
  • Benefits: Payments count towards the basic State Pension, employment and support allowance, maternity allowance, and bereavement benefits.

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What are Class 4 NICs?

If you’re self-employed and your annual profits exceed £12,570, you’re also required to pay Class 4 NICs in addition to Class 2 NICs.

Key Features:

  • Rates: Class 4 NIC rates for 2023-24 are 9% on chargeable profits between £12,570 and £50,270. An additional 2% is payable on any profits over £50,270.

are you exempt?

There are a few professions where Class 2 NICs are not applicable. These include:

  • Examiners, moderators, invigilators, and people who set exam questions.
  • People who run businesses involving land or property.
  • Ministers of religion who do not receive a salary or stipend.
  • Individuals making investments for themselves or others, but not as a business and without a fee or commission.

If you belong to any of these categories, it may be beneficial for you to get a State Pension forecast and consider making voluntary Class 2 NICs to make up for missing years.

Next steps

  1. Calculate Your Earnings:
    Verify if you cross the Small Profits Threshold or the £12,570 limit for Class 4 NICs.
  2. Check Exemptions:
    Ensure that you don’t fall under any of the categories that are exempt from Class 2 NICs.
  3. State Pension Forecast:
    It’s wise to check your State Pension forecast to understand how your NICs impact your future benefits.
  4. Consult an Expert:
    Given the intricacies, it might be beneficial to consult with a tax advisor or accounting professional to help you navigate the NIC landscape.

Understanding your National Insurance contributions is vital for financial planning and fulfilling your tax obligations. If you have more questions about how these classes apply to your situation, feel free to get in touch with us.

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