With Self Assessment season for 2020-21 in full swing, its useful to revisit Voluntary NI issues, and maintaining access to State Benefits and State Pension.
Entitlement to State Benefits, primarily State Pension, is currently generated from either:
- Class 1 National Insurance from an Employment / Job – confusingly, no NI is due on weekly earnings of less than £120 (2021/22), and NI is payable at 12% on weekly earnings over £184 (2021/22) – between these thresholds you pay NI at 0%, meaning the threshold for benefit entitlement is £120 a week even if there is no actual NI deduction from your payslip.
- Class 2 National Insurance from Self Employment – you are exempt from Class 2 if your profits are under £6,515 (2021/22)
- NI credit as a carer or parent – see see HMRCs guide to 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 you are Self Employed – including being a partner in a Partnership – but earning less than the £6,515 threshold, then the easiest and cheapest solution is to pay a voluntary Class 2 contribution – £3.05 week (2021/22)
- If you are not Self Employed then you would need to pay voluntary Class 3 contributions which are more expensive – £15.40 week (2021/22)
Generally consider Voluntary NI if in any given tax year you haven’t earned at least £6,240 from Employment (52 x Lower Earnings Limit of £120 – 2021-22 rate), or £6,515 from Self Employment.
Its worth noting that for State Pension the earnings from Employment are annualised, so if you don’t earn £120 a week from an Employment, but earn at least £6,240 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 which have other criteria.
As you get older its worth getting a State Pension forecast 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 benefit of paying voluntary Class 2 NI.
See our full guide to Voluntary NI and protecting State Benefits