Class 2 National Insurance contributions were originally due to be abolished from 6 April 2018, with Class 4 reformed from the same date to provide the mechanism by which the self-employed build up their entitlement to the state pension and certain contributory benefits. However, the delay to the reform means that it will now take effect from 6 April 2019.
The one-year delay does however create a window of opportunity for those who have small earnings from self-employment and no one means of building up their contributions record. Where earnings from self-employment are below the small profits threshold, set at £6,205 for 2018/19, the self-employed earner is entitled but not obliged to pay Class 2 contributions. This means that self-employed earners falling into this category can pay Class 2 voluntarily if they so wish for an extra year.
Where it is beneficial to pay a voluntary contribution, for example where a person will not have the full 35 years needed for a full single-tier state pension, paying a Class 2 contribution voluntarily where this is an option is much cheaper than paying voluntary Class 3 contributions. For 2018/19, Class 2 contributions are set at £2.95 per week, whereas Class 3 contributions are set at £14.65 per week. Paying Class 2 rather than Class 3 will save £608.40 for 2018/19.
To take advantage of this opportunity, you will need some earnings from self-employment in 2018/19.
Written by the Tax Advice Network