Retirement age NI bonus

 When you reach the State Retirement Age (SRA) you stop paying Class 1 NIC contributions if you are employed, and Class 2 contributions if you are self-employed.

 You will still have to pay Class 4 NIC, the most significant self-employed NIC charge, for the entire tax year during which you achieve the SRA. The next year you will be exempt.

 If you are unsure when you will reach SRA, there is a free “check your SRA” on the GOV.UK website at https://www.gov.uk/state-pension-age.

 For the self-employed, reaching the SRA can influence your tax planning options. Ordinarily, if a sole trader is profitable, it may pay to consider incorporating the business as the combined Corporation Tax plus dividend tax may be less than the combined Income Tax and Class 2 and 4 NIC contributions. However, if you no longer have to pay the Class 2 and Class 4 NIC it may be more beneficial to continue as a self-employed person.

 It is best not to generalise, there may still be good reasons for considering incorporation, but a rethink when you attain SRA may reduce your overall tax bill.

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