It is important to know what your projected state pension entitlement will be as early as possible.
To get the full state pension entitlement you need to have paid or been credited with a number of years of qualifying national insurance contributions. The exact number can depend on your date of birth.
In some cases, the entitlement can be increased by electing to pay voluntary national insurance contributions. These contributions could either be class 2 NIC (currently payable at a rate of £2.95 per week) for the self-employed or class 3 NIC (currently payable at £14.65 per week) for others.
It had been intended that class 2 NIC was to be abolished from April 2019.
In an unexpected move, the government recently announced that it will not be abolishing Class 2 National insurance contributions during this Parliament. The main reason given is concern about the impact the change would have on self-employed earners with low taxable income (this can be purely because of reinvestment into the business).
Sole traders & partners in partnerships are currently required to pay class 2 NIC & Class 4 NIC. It is presently the class 2 NIC which gives entitlement to benefits including the state pension. Class 2 NIC can be voluntarily paid regardless of the level of taxable income, whereas class 4 NIC is only payable where taxable income is above £8424 per year. Class 2 NIC was previously paid monthly by direct debit or by quarterly demand; however, it is now paid as part of your tax liability in July & January each year & is calculated on the self-assessment tax return.
The announcement does mean that self employed individuals can continue to reinvest in capital expenditure for their businesses without it potentially affecting their future state pension entitlement.
Instead of paying Class 2 NIC or Class 4 NIC, employees or directors of limited companies pay class 1 NIC on their salary, where this exceeds the threshold which gives them credit towards their state pension.
Due to the complexities of the changes in the NIC system we recommend arranging a state pension forecast. We can arrange to obtain this on your behalf to assist you with planning for your future.
If you do wish to discuss this further please do not hesitate to contact Thomas Westcott HERE.