NICs for the self-employed
What you need to pay if you work for yourself
Self-employed people have to pay two types of National Insurance. The first, Class 2 contributions, amount to £2.00 per week and are paid by anyone earning more than £3,955.00 per year.
This can either be paid monthly by Direct Debit or quarterly; in the latter case you’ll be sent a bill and usually a payment book too. These Class 2 contributions offer very basic cover, as you’d expect from the amount of money involved. Depending on your circumstances, these contributions may be sufficient for you to claim incapacity benefit in the future, but not industrial injuries benefit. You’ll get the basic retirement pension, but not earnings-related pension payments, nor any bereavement benefits if your spouse should die.
If you don’t already have the necessary form for Class 2 contributions, ask the IR for form CA5601 which will tell you what you need to know.
The £2 per week for class 2 contributions may seem like a bargain, especially if you’re the sort of person who prefers to rely on yourself rather than the state. But in fact this is not the end of the story.
As a self-employed person you must also pay Class 4 contributions on any profit (as calculated by your tax return form or Schedule D statement) between £4,535.00 and £29,900.00 per annum. The rate payable here is 7 percent of that profit, but since the £29,900 per annum is a ceiling, the most you would pay under Class 4 contributions is £1,775.55 in any year, plus £104.00 for Class 2 contributions.
Even this amount is less than you would pay as an employee, where around 10 percent of salary (between the same income levels) is the norm. With National Insurance, as with Income Tax, the self-employed generally pay less than other types of worker.