NIC for the self-employed: clarification following the Spring Statement

The Spring Statement amendments have no effect on voluntary class 2 national insurance contributions, however class 4 losses may need to be recorded separately.

Individuals with adjusted trading profits up to the class 2 small profits threshold (SPT), which is £6,725 for 2022/23, will be allowed to make voluntary class 2 national insurance contributions (NIC) of £3.15pw in 2022/23. This includes traders who make losses, because a trading loss is equivalent to a profit of £nil for class 2 NIC purposes.

This follows the announcement in the Spring Statement that traders with profits between the SPT and the class 4 lower profits limit (LPL – see below) will not have to pay class 2 NIC starting in 2022/23, but will still receive credit for that year in their national insurance contributions record. The credit in the contributions record will entitle them to claim state pension and contributory state benefits. It is, in effect, a nil rate band, similar to the one for employees. For 2022/23, the LPL will be £11,908, and from 2023/24 onwards, it will be aligned with the £12,570 income tax personal allowance. Regulations will be established as soon as possible.

By way of reminder, traders who make tax adjusted losses can carry them forward against future profits of the same trade when calculating class 4 NIC in subsequent years. Because income tax losses and class 4 NIC losses can be offset differently, we recommend that if your software does not capture the information, a record of losses for class 4 NIC purposes is kept separately from losses for income tax purposes.