National Insurance Contributions (NICs) help to pay for some state benefits, including retirement pensions. NIC that you pay can earn you the right to receive certain benefits.
In the current fiscal year (2018/19) there are four different classes. The class of NICs you pay is dependent upon whether you are employed, self-employed, or making voluntary contributions.
National Insurance for the self-employed
Class 2 NICs are liable to be paid every week or partial week of self-employment in a given tax year, where your profits for that tax year equal or exceed the Small Profits Threshold (£6,205 2018/19)
However, where your profits are below the Small Profits Threshold, and where there is a risk that you may not have made enough NICs to guarantee that you will receive a full state pension upon retirement, it could be advisable to make Class 2 NICs - even though you would be otherwise entitled to claim an exemption.
At a flat rate of £2.95 per week, payable in one lump sum on or by the 31 January following the tax year concerned, paying class 2 NICs is a cheaper way to ensure that you maintain your State Pension entitlement that opting to pay Class 3 voluntary NICs.
Class 3 NICs are charged at a rate of £14.65 per week and are normally paid quarterly within the tax year concerned.
Going abroad to work?
If you are going abroad to work, you can pay Class 2 NICs. That way, you get the same State Pension entitlement as if though you were paying Class 3 NICs, but at a fraction of the cost.
Before deciding whether to pay NICs voluntarily, you should make sure that there are gaps in your NI record for which payment can be made to enhance your State Pension Entitlement.
If you are unsure about any gaps in your National Insurance record, speak to us as we can advise on what is best for you.