How recent changes to National Insurance affect the self-employed


Recent modifications to National Insurance Contributions (NICs) have a substantial impact on self-employed persons. All self-employed people must understand how their NICs will appear when new laws come into effect.

Let’s look at the changes to National Insurance rules and how they will affect self-employed people, as well as how to deal with any issues posed by the new rules.

Understanding the changes

One of the most significant alterations to the charge system for self-employment is the elimination of Class 2 National Insurance for the majority of taxpayers.

Class 2 National Insurance will remain in force for self-employed persons whose profits fall below the required threshold (currently £6,725) but who choose to pay voluntarily in order to maintain their state pension entitlement.

Until 6 April 2024, the rate of Class 2 NICs is a fixed rate of £3.45 per week for those earning more than £12,570.

In addition to Class 2, self-employed persons must pay Class 4 National Insurance based on profits.

For people earning between £12,570 and £50,270, the tax will continue at 9% until 6 April 2024. Then it will decrease to 8%.

Profits in excess of £50,720 will continue to attract the class 4 NIC rate of 2%

Tax planning for the self employed

Self-employed persons with lesser NI liabilities might profit significantly from tax planning and reviewing their current business structure.

The reprieve may provide breathing room for sole traders to take a step back and evaluate their operations.

These are the primary aspects that you must account for if you are self-employed and wish to become more tax-efficient:

  • Maintain accurate records: Keep detailed records of all income and spending. This guarantees that you pay the proper amount of tax, and it may also assist you in identifying deductible costs that will lower your tax liability.
  • Use permitted expenses: Learn about the tax-deductible costs. These may include charges directly tied to your business, such as travel, office expenses, and some types of equipment.
  • Capital Allowances: If you purchase equipment for your business, you may be eligible to claim capital allowances. This allows you to deduct part or all of the item’s cost from your profits prior to paying taxes.
  • Consider VAT registration: If your revenue exceeds the VAT threshold, you must register for VAT. Even if your revenue is below the threshold, optional registration might be helpful since it allows you to recover VAT on business expenditures.
  • Pension contributions: Contributions to a pension scheme can be a tax-effective strategy to save for retirement because they lower your total taxable income.

Controlling tax liabilities

Proper tax planning not only includes lowering your current tax burden, but also controlling your future tax liabilities.

Consider the long-term consequences of your tax actions, such as how investing for a pension today will influence your income tax in retirement.

Effective tax planning for self-employed persons in the UK necessitates a thorough awareness of current tax legislation, particularly recent developments such as the elimination of Class 2 NICs and reductions in Class 4 payments.

If you are a self-employed person who would like further help with tax planning, call JW Hinks on 0121 456 0190. Our friendly team of tax experts can make sure you are not paying more tax than you owe while remaining compliant with HMRC.

Get in touch

JW Hinks LLP
19 Highfield Road, Edgbaston,
Birmingham B15 3BH

Phone: +44 (0) 121 456 0190
Fax: +44 (0) 121 456 0191