Class 2 And 4 Ni Contributions

[Smowball]

Can somebody please explain in layman terms the difference and why on the tax return I've just submitted it says I owe for both. It's for last year and a job that I no longer do. I earned JUST below the tax threshold and then it gave me option to pay class 2 to ensure pension was adequate. But when I've got to very end it says I'm paying class 2 AND class 4 and gives me a bill. I'm really confused now lol

[Mamyalynne]

Basic explanation here


https://www.gov.uk/self-employed-national-insurance-rates

[Smowball]

Oh I see! Not sure why they don't just have it as one class though. As long as I'm paying the right amount though. Thanks Mamya - as usual! I don't really understand NI

[Mamyalynne]

A long time since I had anything to do with it, nothing is simple is it?

[Buenchico]

If your profit for the year is less than £5,965 you don't pay any National Insurance.

If your profit is £5,965 or higher you pay £2.80 per week (Class 2).

Once your profit reaches £8,060 you start paying 9% of that profit (Class 4) in addition to your Class 2 contributions. (For any profit over £43,000 you only pay 2%).

Class 2 contributions will be abolished from the start of the 2018/19 tax year.

[SherryBea]

I've always found them very helpful if you give them a call.

[Smowball]

Yes it's over the £8060. I just don't really get what the two separate amounts are for? What does the £2.80 go towards and what does the 9% go towards?

[rockyroad]

class 2 contributions ensure your pension payments are up to date. Class 4 ensure you can get Income based Benefits should you lose your job.

[Buenchico]

Class 2 contributions count towards your State Pension and your eligibility for Employment Support Allowance (but not for Contribution-Based Job Seeker's Allowance).

Class 4 contributions don't currently count towards anything. (They're simply a form of tax). As from April next year, when Class 2 is abolished, they'll count towards the same things that Class 2 currently does.

[Peter Pedant]

// What does the £2.80 go towards and what does the 9% go towards?//

what are NICs for ?
what are NICs FOR ?

nothing except for lining the civil servants offices and giving them blardy great big fat pensions at an unthinkably early age

A tax being FOR something ( world peace etc ) is a hypothecated tax and we dont have any of them. Income Tax (1799) was initially FOR the napoleonic wars but you must know they are over. Road tax was FOR roads but arent now - straight into the Consolidated Fund

NICs were for pensions but now the NICs Acts have the same beginning as any other tax act ( apparently money raising acts have a special beginning and of course a special royal assent " la reyne remercie ses bons sujets et le veult" ) - so it is a tax. ( little noticed change from 2002 I think )

[Smowball]

Ohhh. So they must be replacing class 2 With something?

[Buenchico]

No. They'll simply have Class 4 for self-employed people, which will give the same entitlements to the State Pension, etc, as are now afforded via Class 2 contributions. (Of course the cut-off point for Class 4 to kick in might change and/or the percentage taken might change but that's yet to be decided in a future Budget statement).