Are sole traders due a tax refund for 2024/25?
Now that the 2024/25 tax filing year is well underway, Liam Coulter, Tax Director at Wilson Nesbitt looks at the changes to national insurance contributions from 6 April 2024 for the self-employed, how they these changes impact your 2024/25 tax return, how they compare to the previous year and how this could potentially mean a tax refund for many self-employed workers.
What are Class 2 NICs?
Class 2 NICs (or Class 2 National Insurance Contributions) used to be collected via Self-Assessment, along with any tax due for each tax year; the total tax and NIC being due by 31 January. They were payable at a weekly flat rate by most self-employed individuals aged between 16 and State Pension age.
Class 2 NICs provide entitlement towards ‘contributory’ state benefits based on how many NICs have been paid. The main benefit is the State Pension, but others include Maternity Allowance and Employment & Support Allowance.
What are Class 4 NICs?
Class 4 NICs are paid by self-employed individuals and partners in a partnership on their profits arising within the UK.
Class 4 contributions are essentially a profit-based tax; there is no attached state benefit entitlement. A Class 4 NIC calculation depends on your level of profits in a tax year. You are only liable to pay Class 4 NIC if your profits are over the lower profits limit.
What has changed for the self-employed?
From 6 April 2024:
- The main rate of Class 4 National Insurance Contributions (NICs) will reduce from 9% to 6%, and
- Class 2 NICs will no longer be due for most self-employed individuals.
If your profits are above the Small Profits Threshold (SPT) of £6725, you will receive National Insurance credits automatically without needing to pay Class 2 NICs.
If your profits are below the SPT, you can choose to pay voluntary Class 2 NICs to protect your entitlement to benefits; the 2024/25 rate is £3.45 per week.
Example
Mary is a self-employed taxi driver. In 2023/24 and 2024/25 her net taxable self-employed profit was £50,000. Mary’s tax and NIC for 2023/24 and 2024/25 is calculated as follows:
| Calculation 2023/24 | |
| Taxable profit | £50,000 |
| Less tax-free personal allowance | -£12,570 |
| Taxable | £37,430 |
| Tax at 20% | £7,486 |
| Class 4 NIC | £3,368.70 (9% of £37,430) |
| Class 2 NIC | £179.40 |
| Total tax and NIC due | £11,034.10 |
| First payment on account due 31/1/25 | £5,427.35 |
| Total due 31/1/25 | £16,461.45 |
| Second payment on account due 31/7/25 | £5,427.35 |
| Calculation 2024/25 | |
| Taxable profit | £50,000 |
| Less tax-free personal allowance | -£12,570 |
| Taxable | £37,430 |
| Tax at 20% | £7,486 |
| Class 4 NIC | £2,245.80 (6% of £37,430) |
| Class 2 NIC | £0.00 |
| Total tax and NIC due | £9,731.80 |
| First payment on account due 31/1/25 | £4,865.90 |
| Total due 31/1/25 | £14,597.70 |
| Second payment on account due 31/7/25 | £4,865.90 |
As you can see from the above, the total tax and NIC payable in 2024/25 is £1,302.30 less than in 2023/24 (£9,731.80 – £11,034.10), with payments on account due for the following tax year also reduced.
In the above example, in September 2025, Mary will have paid her two payments on account for 2024/25 of £5427.35 (total £10,854.70).
Mary’s actual 2024/25 liability is £9731.80. If Mary submits her 2024/25 Tax Return in September 2025, HMRC will send her a refund of £1122.90.
This means that if your taxable profit for 2024/25 is roughly the same as last year then you could be in line for a tax refund.
Summary
For those who are self-employed with profit levels similar to 2023/24 and have paid both of their 2024/25 payments on account (due January and July 2025), you may have overpaid your 2024/25 tax and be due a refund.
If you normally wait until December or January to submit your Tax Return you could be missing out on extra money that could boost your cashflow and help with the day to day running of your business.
Our Tax team at Wilson Nesbitt can prepare your income and expenditure accounts and submit your tax return usually within 7 days of receiving the relevant information, speeding up the time it takes for you to get your refund.
For further information and a fee quote, please get in touch with our Tax Director, Liam Coulter.