A. Until 5 April 2015, every ‘self-employed earner’ was, if he was over the age of 16 and under pensionable age, liable to pay Class 2 contributions at a prescribed weekly rate.
From 6 April 2015, this liability has applied only to earners with relevant profits from a trade, profession or vocation of, or exceeding, a small profits threshold, set initially at £5,965 for 2015–16 and unchanged for 2016–17.
The term ‘self-employed earner’ is anyone who derives remuneration or profit from an ’employment’, a term which includes any trade, business, profession, office or vocation.
Before 6 April 2015, this was enough to create a Class 2 liability in respect of any unincorporated business (subject to a claim for small earnings exception), but from that date liability is limited to cases where there is income ie. ‘relevant income’ at least equal to the new small profits threshold from a trade, profession or vocation, ie, the same basic definition of the source as is used for Class 4, albeit with a different starting threshold.
Those classed as self-employed earners who do not have trading profits now have no liability to pay Class 2 contributions and the charge is now limited to those with ‘relevant profits’ above the small profits threshold. They do, however, have the right to do so in order to protect their benefit entitlements. The earner may pay the same level of Class 2 contribution as a trader (with sufficient annual profits to create a compulsory liability) in respect of any week in the relevant tax year in which the earner is in the ’employment’. This enables both traders with low profits or losses and non-traders with business income to maintain their entitlement to the state pension and contributory short-term employment and support allowance.
Therefore, in this instance, if the loss is carried back to the previous year the profits for Class 2 are reduced and as such the liability to Class 2 is removed.
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