Paying the right National Insurance contributions helps protect your future benefits while keeping your tax affairs up to date. If you’re self-employed, understanding how National Insurance works is an important part of running your business.
What are National Insurance contributions?
National Insurance contributions (NICs) help fund a range of state benefits and public services. They also help build your entitlement to certain benefits, including:
- The State Pension
- Maternity Allowance
- Some contributory benefits
- The NHS and other public services
For most self-employed people, National Insurance is calculated as part of your annual Self Assessment tax return.
How do I pay National Insurance?
If you’re a sole trader or self-employed, your National Insurance is usually calculated automatically when you complete your Self Assessment tax return.
Any National Insurance due is paid alongside your Income Tax, with the main payment normally due by 31 January following the end of the tax year. Payments can be made securely through your HMRC online account.
How much National Insurance will I pay?
The rules have changed significantly over the past few years.
Class 2 National Insurance
You no longer have to pay Class 2 National Insurance if you’re self-employed.
However, if your annual profits are £6,845 or more, HMRC automatically gives you a National Insurance credit. This means you continue building up your entitlement to benefits such as the State Pension without having to make a separate Class 2 payment.
If your profits are below £6,845, you may choose to make voluntary Class 2 contributions. This can be worthwhile if you want to fill gaps in your National Insurance record and protect your future State Pension entitlement.
Class 4 National Insurance
Class 4 National Insurance is the contribution that most self-employed people actually pay.
If your annual profits are more than £12,570, you’ll usually pay:
- 6% on profits between £12,570 and £50,270
- 2% on any profits above £50,270
You don’t need to calculate this yourself. When you complete your Self Assessment tax return, HMRC automatically works out how much Class 4 National Insurance you owe based on the profits you’ve declared.
Are there any exceptions?
Some types of work have different National Insurance rules, and in certain circumstances you may not need to pay compulsory contributions.
Examples include:
- Some examiners, moderators and invigilators
- Certain property-related businesses
- Some ministers of religion who do not receive a salary or stipend
If you’re unsure which rules apply to your circumstances, it’s worth taking professional advice before submitting your tax return.
Getting your Self Assessment right
National Insurance is only one part of your Self Assessment return, but getting it wrong could affect both your tax bill and your future benefit entitlement.
Whether you’re completing your first tax return or you’ve been self-employed for years, we can make sure everything is completed accurately and that you’re paying the correct amount.
Need help with your Self Assessment or National Insurance? Contact North Devon Accounts today to arrange a friendly, no-obligation consultation. We’ll make sure you stay compliant and avoid paying more than you need to.
