When May A Voluntary NI Contribution Be Beneficial?
Entitlement to State Benefits, primarily State Pension, is currently generated from either:
- Employees – including Company Directors – Class 1 National Insurance from an Employment / Job – confusingly, no NI is due on weekly earnings of less than £123 (2024/25), and NI is payable at 8.0% on weekly earnings over £242 (2024/25) – between these thresholds you get a NI credit (effectively you pay NI at 0%), meaning the threshold for benefit entitlement is £123 a week even if there is no actual NI deduction from your payslip.
- Self employed – Class 2 National Insurance from Self Employment – this has changed for 2024/25:
- If your business profits are over £6,725 you get an automatic credit for Class 2 NI but make no payment
- If your business profits are under £6,725 you get no credit. But you can pay voluntary NI at £2.45 / week (collected as an annual payment, via Self Assessment) to protect state pension and benefit rights.
- NI credit as a carer or parent – see see HMRCs guide to Voluntary NI
Voluntary NI
If you don’t pay National Insurance or get a credit from one of the sources above for each week/month, then a voluntary NI payment may be sensible, for example if:
- If you are Self Employed – including being a partner in a Partnership – but earning less than the £6,725 threshold, then the easiest and cheapest solution is to pay a voluntary Class 2 contribution – £3.45 week (2024/25). This is paid annually via Self Assessment.
- If you are not Self Employed then you would need to pay voluntary Class 3 contributions which are more expensive – £17.45 week (2024/25).
Generally consider Voluntary NI if in any given tax year you haven’t earned at least £6,396 from Employment (52 x Lower Earnings Limit of £123 – 2024-25 rate), or £6,725 from Self Employment.
Its worth noting that for State Pension the earnings from Employment are annualised, so if you don’t earn £123 a week from an Employment, but earn at least £6,396 over the tax year (52 x £120) then the year is a Qualifying Year for State Pension, but it may not qualify you for other state benefits where criteria differ.
It is worth getting a State Pension forecast periodically from HMRC to see how many more years you need to pay for a full pension – whilst there is no exemption from paying NI once you have accrued a full pension, there is no real merit in making voluntary contributions at this stage.
If you need to pay Voluntary Class 2 NI then you can do so by ticking the relevant box on the Self Employed section of your Self Assessment, however you must pay the Class 2 by 31 January after the tax year (the normal Self Assessment payment date) – if you pay late, even by a day, then you lose the right to pay voluntary Class 2 NI.
Looking ahead – in the Autumn Financial Statement 22nd November 2023 it was announced Class 2 NI was to be abolished from 6th April 2024. However in the short term for 2024/25 an option to pay voluntary Class 2 NI to protect pension and benefit entitlement remains as outlined above. From 2025/26 onward the government propose further, as yet unspecified, protections, but watch this space.
Employed and Self Employed? NI Considerations
What about if you have both Employed and Self Employed income?
First, it is important you pay National Insurance on one or other source to preserve benefit rights, and in particular State Pension.
If you are paying Class 1 National Insurance on your Employed income of at least £6,396 then you will get your benefit entitlements including State Pension from that Class 1 NI. If your Self Employed income is below the £6,725 Class 2 NI threshold that’s fine, but if it is over £12,570 then Class 4 Self Employed NI is still due (as NI is charged separately on each source where there is Employment and Self Employment).
If your Employment income isn’t £6,396 over the course of a tax year, then if your Self Employed income is over £6,725, Self Employed a Class 2 NI credit is triggered and that will cover you.
If neither source of income is high enough to trigger National Insurance. consider paying, via your Self Assessment, a Voluntary NI Class 2 payment.
There is an annual maximum for National Insurance if you pay at full rate in an Employment and have an additional second Employment or Self Employment but it is extremely complex.
The Self Employed pay both Class 2 and Class 4 NI. Class 4 a variable percentage. All State Benefits are triggered from Class 2.
- Class 2 – 2024/25 – Credit given if profits over £6,725, but no payment to make.
- Class 4 – 2024/25 – 6% on profits between £12,570 and 50,270. 2% on profits over £50,270.