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Class 2 National Insurance Contributions: What You Need to Know

If you’re self-employed in the UK, you may want to pay Class 2 National Insurance (NI) contributions. You may be wondering why anyone would want to hand over their hard-earned cash if it’s not legally required, but your contributions mean you’re eligible for benefits like State Pension, which we’ll cover in more detail below. 

Who Needs to Pay Class 2 National Insurance?

You’ll need to pay Class 2 NI if your profits from self-employment are above the Lower Profits Limit. For the 2023/24 tax year, the Lower Profits Limit is £12,570. But if your profits are below this amount, for example, you’ve just started out, have returned from maternity leave or perhaps you’ve gone part-time, you don’t need to pay any Class 2 NI contributions.

What Are the Benefits of Paying Class 2 National Insurance?

Whilst Class 2 NI contributions aren’t mandatory, there are lots of good reasons why you should keep them up:

  • The age at which you become eligible for a State Pension depends on what year you were born but as a general rule, it’s currently 66.
  • At some point, you may need and be eligible for benefits, such as unemployment benefits or maternity allowance as long as you’ve been self-employed for 26 weeks in the 66 weeks before your due date.

Paying Voluntary Class 2 National Insurance

Even if your profits are below the Lower Profits Limit, you’re still able to pay voluntary Class 2 NI contributions to make sure that you’re eligible for the State Pension and other benefits should you need them. 

How Much Do You Pay?

Currently, the amount of Class 2 NI you’ll need to pay is fixed at £3.45 per week for the 2023/24 tax year. 

When Do You Pay?

Most self-employed people pay their Class 2 NI contributions through their annual self-assessment tax return.

How to Pay Class 2 National Insurance Contributions

Class 2 NI contributions can be paid online, by phone or by post. To pay online, you’ll need to create an account on the HMRC website. To pay by phone, just call HMRC’s self-assessment helpline. To pay by post, download a payment form from the HMRC website.

More on State Pension

As we mentioned above, one of the biggest benefits of voluntarily keeping your Class 2 NI contributions up to date is being eligible for the State Pension when you reach the right age. 

The State Pension is a government-funded payment to people who have reached retirement age and provides them with an income for the rest of their lives. The amount of State Pension you receive depends on the amount of National Insurance contributions you’ve previously paid. If you don’t have enough ‘qualifying years’, you may not be entitled to the full State Pension when you reach retirement age and will have to fund your living expenses (and the things you like to do) some other way. 

Mortgage matters

Plus, depending on your age, such as if you’re applying when you’re above retirement age, if you don’t have enough of a State Pension then it can affect your ability to get a mortgage. This is because lenders will want to see that you have enough income to meet your mortgage repayments. If your State Pension isn’t enough to cover your monthly payments, you may need another source of income, such as a personal pension or a part-time job.

Lenders will also consider your age when they assess your mortgage application. If you’re coming up to retirement age, they may be more cautious about lending to you and wonder whether you’ll be able to work and earn an income in the future.

Some lenders will ask for confirmation of your Class 2 NI contributions. In these situations, they’ll ask to see your copy of your confirmation and that of HMRC to make sure the details match. If they don’t, it may delay the process.

So, if you’re self-employed, it’s important to understand your Class 2 NI obligations to make sure you’re paying the correct amount and reap the rewards of keeping them up to date when you need them. 

Important point on pensions

If you’ve received any correspondence from HMRC regarding tax amounts stating a figure that’s different to what you’ve been told by your accountant, let them know immediately because it could be linked to the Class 2 State Pension.

We hope this blog has been useful but if you’ve any questions about Class 2 National Insurance, please get in touch.

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Understanding the P11D and What to Include to Meet the July Deadline

Tax and filling in forms go hand in hand. If you’re an employer and your employees receive taxable benefits in kind, then you need to know about the P11D as it must be completed by the 6th of July each year.

The important P11D sections to complete

There are different sections in the P11D form to complete in full. The most important sections include:

  • Section 1: employee details. This section includes the employee’s name, address and National Insurance number.
  • Section 2: benefits in kind. This section lists all the benefits the employee has received during the tax year.
  • Section 3: calculation of taxable benefits. This section calculates the amount of tax due on the employee’s benefits.
  • Section 4: employer’s declaration. This section must be signed by the employer to confirm the information on the P11D is correct.

If you’re an employer, you must complete the P11D form correctly and on time. If not, you could be hit with a fine from the HMRC.

Tips for completing the P11D

Here are our top tips for completing the P11D form:

  • Start early. Don’t wait until the last minute to complete the P11D form. Give yourself plenty of time to gather all the information you need.
  • Use the right version. There are different versions of the P11D form depending on the type of business. So, make sure that you use the right version for your business.
  • Check your work. Once you’ve filled in the P11D form, check it then check it again.
  • Submit the form on time. Always submit the P11D form to HMRC by the 6th of July each year to avoid penalties.

P11D extra tips

  • Keep good records. Keep all the information needed to complete the P11D form, such as receipts, invoices and contracts.
  • Use a payroll software program. This helps you calculate the tax due on your employees’ benefits.
  • Get help from a professional. If you’re unsure how to complete the P11D form, always get help from a qualified accountant or tax adviser.
  • We’re here to help make sure you file your P11D right the first time, on time. So before the deadline rolls around again next year, get in touch to find out more.