What Tory plans to scrap self-employed national insurance would mean for taxes and pensions
- Written by Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, The Open University
The Conservatives have been chipping away at national insurance[1], and say they want to abolish it altogether for the self-employed. But national insurance has traditionally been the way to build up a state pension – so where would this leave the people who work for themselves?
In common with most higher-income countries[2], the UK operates a social insurance system. In return for paying certain types of tax, you become entitled to claim various benefits from the state.
National insurance is a tax paid by people of working age on their earnings or profits. Some types act as social insurance, including class 1 contributions paid by employees and class 2 contributions paid by self-employed people. These contributions build your entitlement to claim a state pension when you retire.
However, the Conservative government abolished class 2[3] national insurance contributions. Instead, since April 2024, self-employed people with taxable profits of £12,570 or more get national insurance credits towards their pension.
Self-employed people with profits between £6,725 and £12,570 already get these credits rather than having to pay contributions.
Those with lower profits can opt into paying the contributions. However, it’s worth remembering that, under current rules, you need only 35 years of contributions or credits to get the full state pension (most people’s working lives span around 50 years).
If you are self-employed, you also pay class 4 national insurance contributions. These are purely a tax on profits – they do not carry any entitlement to claim the state pension or other benefits.
Class 4 contributions apply on profits above £12,570 and up to £50,270 at a main rate (6%[4] since April 2024) and a lower rate of 2% on profits above that. The Conservatives, in their manifesto, pledge to reduce the main rate further in successive years until the tax is fully abolished from April 2029. This would not affect income tax, which self-employed workers pay at the usual rates on any profits they make.
