Self-employed individuals with profits of more that £12,570 a year pay two types of NIC: Class 2 and Class 4. Two key changes came into effect from 6 April 2024, as previously announced in Autumn Statement 2023 and further extended in the most recent budget:
- The main rate of Class 4 NICs was cut from 9% to 6% in 2024/25. Class 4 NICs continue to be calculated at 2% on profits over £50,270.
- Class 2 NICs has effectively been abolished, saving £179.40 per annum.
What does it mean?
This NIC reduction means that a sole trader with, say, trade profits of £50,000 will pay £1,302 less NICs in 2024/25 than will be due for the 2023/24 tax year. Just be aware that this saving may not be felt until the 2024/25 self-assessment balancing payment is made on or before 31 January 2026.
Entitlement to state benefits including the state pension
If you are self-employed, your Class 2 NIC payments have ensured you accrue entitlement to a range of state benefits, including the state pension. If your profits exceed £6,725 in 2024/25 you will continue to accrue entitlement to state benefits despite not paying Class 2 NICs. If your profits are less than £6,725 or you make a loss, you may need to pay Class 2 NICs on a voluntary basis to maintain your state benefit entitlement.