Class 2 National Insurance Contributions

HMRC are not known for ease of use or simplicity of process. Attempt to simplify at least one element of the tax system and making a nod towards a lessening of red-tape, in August 2015 weekly and monthly Class 2 National Insurance Contributions were stopped for good.

To simplify the collection of Class 2 National Insurance Contributions payments are collected once a year rather than every few weeks. Self-employed people now pay class 2 National Insurance (NI) with the rest of their tax and NI liabilities in January and July each year. Easier? Possibly, but it may be argued this is more for the processors than the payees. Once small business have got used to the change hopefully it will make the positive difference our tax officers are hoping for.

For those not entirely clear about what the contributions are here is a little more in the way of detail. National insurance contributes towards your state pension and certain other benefits; the amount of contributions you make during your working lifetime affects the level of pension you receive.

There are different classes of national insurance contributions (NIC) for different types of workers. If you are employed on a payroll, you pay Class 1 NIC which get taken automatically via PAYE. Class 2 and Class 4 national insurance allow self-employed people to make the necessary contributions. For specific thresholds and options to opt in and out, check out the website.

Previously Class 2 NIC was either billed six monthly or taken via a monthly direct debit. Both of these methods have now been replaced with a single annual calculation as part of your Self Assessment Tax Return. This already happens with your Class 4 national insurance, so theoretically it will make your life easier.

The online Self Assessment form will work out exactly how much you need to pay for the year, based on the information you provide in your return. Until the change came into place there was a certain amount of estimation and guess work involved. Whilst the online Self Assessment will calculate the amount due self-employed business owners will still need to estimate how much money they should set aside during the year to pay the bill when due.
If you need assistance filing your Self Assessment and managing your NI contributions we recommend you contact an accountant for assistance.