National insurance contributions 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.
Class 2 national insurance contributions
The first, class 2 contributions, amount to a flat rate of £2.70 per week and are paid by anyone earning more than £5,725per year. (If you earn less than £5,725 a year you are not entitle to pay national insurance, however you will need to apply for Certificate of Small Earnings Exception via HMRC).
This can either be paid monthly or six-monthly by direct debit or in response to payment requests from HMRC in October and April. Any outstanding arrears can be paid in a one-off payment.
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’re not already set up to pay class 2 contributions, you can register at HMRC when you register for business taxes. If you’re already self-employed but not set up to pay national insurance you can call HMRC’s new ‘self-employed helpline’ on 0300 200 3505.
The £2.70 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.
Class 4 national insurance contributions
As a self-employed person you must also pay class 4 contributions on your profit per year. For annual profits between £7,755 and £41,450 you will pay 9% and then an additional 2% on any profits exceeding that amount.
Your class 4 national insurance contributions must be calculated on your self-assessment tax return and paid alongside your income tax.
If you complete your form online, your contributions will be automatically calculated. If you’re filing a paper self-assessment form but are unsure how to work out your class 4 contributions, leave the space on the form blank and HMRC will calculate the amount on your behalf.
For those operating more than one business, there are special rules which calculate adjustments to the amount of insurance you need to pay on business profits.
Unlike class 2 contributions, class 4 national insurance does not count towards any benefit entitlements.
Calculating your total national insurance contributions
See the table summary below.
|Annual earnings and profits||Class 2||Class 4|
|Up to £5,725||£0 but only if you get an exception||£0|
|£5,725 – £7,755||£2.70 a week||9% of profits between £7,755 and £41,450|
|£7,755 – £41,450||£2.70 a week||9% of profits between £7,755 and £41,450|
|More than £41,450||£2.70 a week||9% of profits between £7,755 and £41,450 and 2% over that amount|
Table source: GOV.UK
Generally, the total amount of national insurance you would pay as a self-employed person is less than you would pay as an employee, where around 10 percent of salary (between the same income levels) is the norm.