What is Self-Employed National Insurance

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April 26th 2024
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What is Self-Employed National Insurance

Quick guide to National Insurance Contributions for the self-employed.

National insurance is split into multiple classes and letters. The payments collected are the backbone to many vital services, at the forefront of which is the NHS. You can read about the exact splits on how your national insurance contributions are spent to see how important the deduction is.

People generally pay NICs from the age of 16 until they reach state pension age.

Employed people can expect national insurance contributions to be automatically deducted from their payslip whilst self employed people get their calculation as part of the self assessment tax return, with payments collected via payments on account.

A sole trader (self employed) will be liable to class 2 national insurance. This is paid weekly, although in reality can be collected as part of your tax return at the end of January each year. It is only applicable once profits exceed the earnings exception limit. However, class 2 contributions can be paid voluntarily to maintain access to state benefits. For 2019, class 2 contributions are equivalent to £3.00 per week.

A sole trader will also be liable to class 4 national insurance. This deduction is based upon the trading profits and is generally aligned to the same lower and upper limits as employed people. The difference is that self employed people pay 9 percent and 2 percent, respectively for the rates compared to 12 percent and 2 percent for the class 1 NICs employed people pay.

Sole traders can get away with paying no other NICs unless they hire people under PAYE. In this case they would have to calculate and pay employers' class 1 NICs at 13.8 percent on the salary paid and possibly others if benefits in kinds are also applicable.

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