National Insurance changes for the self employed

The National Insurance rules for self employed people have been simplified and cut, which is a rare piece of good news on tax. Two separate changes have reduced what many sole traders pay and removed an old flat charge, while still protecting the National Insurance record that builds towards the state pension. If you are self employed, it is worth understanding what has changed and why your bill may have fallen.

What has changed

There were two main changes. First, the main rate of Class 4 National Insurance, charged on self employed profits, was cut from 9 per cent to 6 per cent, which directly reduces the bill on profits between the lower and upper limits. Second, Class 2 National Insurance, which used to be a separate flat weekly charge, is no longer something most self employed people have to pay. Crucially, those with profits above the small profits threshold still receive the National Insurance credit towards their state pension as if they had paid it, so they keep the benefit without the bill.

Who it affects

This affects sole traders and partners in a business. Most are better off, because the Class 4 cut reduces their bill and the old Class 2 charge has gone. People with very low profits, below the small profits threshold, can still choose to pay Class 2 voluntarily if they want to protect their state pension record, which can be very good value, so it is worth checking rather than assuming.

What you can do

For most self employed people there is nothing to do except enjoy the lower bill, but it is worth a couple of checks. Make sure your National Insurance record is complete, because gaps can reduce your state pension, and if your profits are low, look at whether paying voluntary Class 2 to fill a year is worthwhile, as it is often one of the cheapest ways to buy a year of state pension. If you also have employment income, the way the different classes interact is worth a quick look.

Our view

Our view is that this is a genuinely welcome simplification, and it is good to see the self employed getting a cut for once. The one thing we would flag is the state pension angle. The headlines were all about the cut, but the quiet detail that matters most for some people is the credit for those above the small profits threshold and the voluntary option for those below. Nobody should let a year slip through that damages their state pension just because the charge is no longer automatic, so a quick check of your record is well worth it.

How we can help

We work out your National Insurance correctly alongside your Income Tax, check your state pension record for gaps, and advise on whether voluntary contributions are worth making. Book a free call back and we will review your position.

Common questions

Do the self employed still pay Class 2 National Insurance?

Most no longer have to pay it. Those with profits above the small profits threshold still get the state pension credit as if they had, and those below can pay it voluntarily to protect their record, which is often good value.

What is the Class 4 National Insurance rate now?

The main rate was cut from 9 per cent to 6 per cent on self employed profits between the lower and upper limits, with 2 per cent above the upper limit.