Most self-employed individuals pay Class 2 NIC (which provides entitlement to state benefits) and Class 4 NIC (which doesn’t). Traders with low profits may only pay Class 2 NIC, which is £163.80 for 2022/23.

The profit levels from which both Class 2 and 4 NIC are payable are being aligned for the first time in the current tax year at £11,908. From 6 April 2023 the starting point for income tax, NIC and the new Health and Social Care Levy, all payable by the self-employed, will be aligned at £12,570.

This is a welcome simplification, but as with all tax there is a hidden complication.

To ensure that those traders who make losses or have low profits are still able to qualify for the state pension and other benefits, they can either get a free Class 2 NI credit or pay voluntary Class 2 NIC, within the bands in the table below.

To be eligible for the Class 2 NIC credit the taxpayer must report profits at least equal to £6,725 on their selfassessment tax return for 2022/23. Those who make lower profits, or a loss, can maintain their NIC contribution record for the year by paying Class 2 NIC on a voluntary basis.

These new rules are relatively complicated. Please contact us if you need to discuss the implications for you.

Profits in band Class 2 NIC payable
Up to £6,724 Voluntary at: £163.80 per year
£6725 – £11,907 NI credit given: zero payable
£11,908 or more Compulsory payment: £163.80 per year