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What National Insurance do I pay if I am self-employed?

What National Insurance do I pay on self-employed income?
How do I register for Class 2 and 4 NIC?
How do I know how much to pay?
So how much Class 4 NIC do I pay?
What is the Small Earnings Exception (SEE)?
I have already paid Class 2 NIC in the current year, but have now applied for a Small Earnings Exception (SEE). Can I get back the NIC I have already paid?
How do I know if I am entitled to pay reduced rate contributions?
I am employed and self-employed. Do I still need to pay Class 2 NIC?
I am employed and self-employed. Do I still need to pay Class 4 NIC?
What is deferment?
What state benefits does payment of Class 2 NIC entitle me to?
Why might I choose to pay Class 2 NIC even if my earnings are below the Small Earnings Exception?
Why might I choose to pay Class 2 NIC even though I could be exempt because I am entitled to pay reduced rate contributions?
How and when do I pay my Class 2 and Class 4 NIC?


What National Insurance do I pay on self-employed income?

Remember that you only pay National Insurance contributions (NIC) between the ages of 16 and state retirement age. You can find out your state pension age by using the calculator on GOV.UK.

You pay two different classes of NIC if you are self-employed – Class 2 and Class 4. If you are a married woman or widow, who is entitled to pay reduced rate contributions, you do not need to pay Class 2 NI. There are special rules relating to share fishermen and volunteer development workers, which you can read about on the HM Revenue & Customs' (HMRC) website.

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How do I register for Class 2 and 4 NIC?

You will register with HMRC as self-employed which will register you for national insurance purposes as well. You can find out about registration on our ‘how do I register as self-employed’ page.

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How do I know how much to pay?

Class 2 NIC are a fixed weekly amount – £2.75 per week for 2014/15, assuming your profits are above the Small Earnings Exception. Class 4 NIC are based on the level of your self-employed profits.

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So how much Class 4 NIC do I pay?

You pay Class 4 NIC on your taxable self-employed profits. The NIC is paid in profit bands as follows (figures shown for 2014/15):

Profit band Class 4 NI
Up to £7,956 nil
£7,956 up to £41,865 9%
Over £41,865 2%


Example

Frank has profits of £10,000 for the tax year 2014/15. His Class 4 NIC liability is calculated as follows:

First £7,956 @ 0% nil
On next £2,044 @ 9% £183.96
Total due £183.96


Example

Henriette has profits of £50,000 for the tax year 2014/15. Her Class 4 NIC liability is calculated as follows:

First £7,965 @ 0% nil
Next £33,909 @ 9% £3,051.81
£8,135 @ 2% £162.70
Total due £3,214.51


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What is the Small Earnings Exception (SEE)?

This relates to liability for Class 2 NIC. If you believe your self-employed earnings for the next tax year are likely to be less than £5,885 (2014/15 limit), then you can apply on form CF10 for a certificate of exception that exempts you from paying Class 2 NI contributions. This certificate may only be made in advance or backdated for a maximum of 13 weeks.

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I have already paid Class 2 NIC in the current year, but have now applied for a Small Earnings Exception (SEE). Can I get back the contributions I have already paid?

If you have already paid Class 2 NIC in the current year incorrectly, then you can reclaim them after the end of the tax year. To do this complete form CA 8480, but beware, it needs to be with HMRC by 31 January following the end of the tax year that you are making the claim for. For example, a claim for overpaid Class 2 NIC for 2014/15, needs to be with HMRC by 31 January 2016. You need to accompany the form with evidence of your earnings for that year.

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How do I know if I am entitled to pay reduced rate contributions?

Married women could apply for a reduced rate of contributions before 1977. A subsequent annulment of marriage, or divorce, immediately stops entitlement to paying reduced contributions. If you are not sure whether or not you are entitled to pay at the reduced rate you can apply on form CF9 (married women) or form CF9A (widows) to find out. The same forms are used to give up your right to pay reduced rate contributions.

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I am employed and self-employed. Do I still need to pay Class 2 NIC?

In general, the answer is "yes". But if you pay the maximum amount of Class 1 NIC, you may not need to pay any more. In that case you could apply for deferment.

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I am employed and self-employed. Do I still need to pay Class 4 NIC?

In general, the answer is “yes”. But if you pay the maximum amount of annual NIC by way of Class 1 and Class 2, you may not need to pay the full amount of Class 4 NIC. In that case you could apply for deferment . In any case you will have to pay 2% Class 4 NIC on all profits above the level of £7,956 (2014/15 rate).

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What is deferment?

This a way of deferring (that is delaying) payment of Class 2 and Class 4 NIC liabilities. If you do this, your total NIC liability is reviewed at the year end and any additional NIC due is then collected. You apply for deferment before the start of the tax year on form CA72B.

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What state benefits does payment of Class 2 NIC entitle me to?

Class 2 gives entitlement to:

  • Basic state pension
  • Contribution based employment and support allowance
  • Maternity allowance
  • Certain bereavement benefits

It does not give entitlement to additional state pension or contribution based jobseeker’s allowance (although there are exceptions for share fishermen and volunteer development workers employed abroad).

Class 4 cNIC do not count towards any state benefits.

In order to claim these benefits, certain amounts of Class 2 NIC will have had to be paid. You can find further details at GOV.UK.

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Why might I choose to pay Class 2 NIC even if my earnings are below the Small Earnings Exception?

You might want to protect your eligibility to certain state benefits.

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Why might I choose to pay Class 2 NIC even though I could be exempt because I am entitled to pay reduced rate contributions?

You might want to protect your eligibility to certain state benefits.

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How and when do I pay my Class 2 and Class 4 NIC?

Class 2 NIC is paid either monthly by direct debit, 6 – monthly by direct debit or 6 – monthly by payment of a bill issued by HMRC. In both of these latter cases payments are due in January and July. You choose the payment method.

Class 4 NIC is paid along with your income tax liabilities.

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