If you are employed when you reach the State Retirement Age (SRA), you no longer have to pay Class 1 NI contributions, or Class 2 contributions if you are self-employed.
You will, however, still have to pay Class 4 NIC for the entire tax year during which you achieve the SRA. The year after that you will be exempt.
There is a free “check your SRA” on the GOV.UK website here: https://www.gov.uk/state-pension-age.
If you are self-employed, reaching the SRA could influence your tax planning options. If you are a sole trader and your business is profitable, it may be worth incorporating your business as the combined Corporation Tax and dividend tax may be less than the combined Income Tax and Class 2 and 4 NI contributions. However, when 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.
There may still be good reasons for considering incorporation, but a rethink when you reach SRA may reduce your overall tax bill. Please seek professional advice before you take any decisions.
To find out more about this article please contact us.