What National Insurance do I pay if I am self-employed?
If you are self-employed you will have to pay National Insurance contributions (NIC). In this section we explain NIC issues that you might come across.
For more general information on NIC go to the section ‘what is National Insurance?’ If you want information on how to get a National Insurance number (NINO) or what to do if you have lost or forgotten your NINO, visit our National Insurance number page.
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 currently 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 GOV.UK.
However the Government has announced that Class 2 NIC will be abolished from April 2018.
How do I register for Class 2 and 4 NIC?
When you register with HMRC as self-employed the registration covers both income tax and National Insurance. You can find out about registration on our ‘how do I register for tax and National Insurance’ page.
How do I know how much to pay?
Class 2 NIC are a fixed weekly amount – £2.85 per week for 2017/18 assuming your profits are above the small profits threshold. The amount of Class 2 NIC due is based on the number of weeks of self-employment in the tax year. So if your self-employment begun on 1 February 2018 you should pay 9 weeks’ class 2 NIC, ie 9 x £2.85 = £25.65.
Class 4 NIC are based on the level of your self-employed profits. You are only liable to pay Class 4 NIC if your profits are over a certain level, the lower profits limit. This is £8,164 for 2017/18.
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 2017/18):
|Profit band||Class 4 NI|
|Up to £8,164||nil|
|£8,164 up to £45,000||9%|
Frank has profits of £10,000 for the tax year 2017/18. His Class 4 NIC liability is calculated as follows:
|First £8,164 @ 0%||nil|
|On next £1,836 @ 9%||£165.24|
Henriette has profits of £50,000 for the tax year 2017/18. Her Class 4 NIC liability is calculated as follows:
|First £8,164 @ 0%||nil|
|Next £36,836 @ 9%||£3,315.24|
|£5,000 @ 2%||£100.00|
What is the Small Profits Threshold?
This relates to Class 2 NIC. If your self-employed earnings for the 2017/18 tax year are less than £6,025 (the Small Profits Theshold), then you do not need to pay Class 2 NIC. You will however have the option to pay Class 2 NIC voluntarily at the end of the tax year.
I have a Small Earnings Exception (SEE) certificate which covers the 2015/16 tax year. What do I need to do?
HMRC should have written to you explaining that your SEE certificate will be cancelled from 11 April 2015 and that your Class 2 NIC will now be calculated as part of the self assessment process.
If you have profits from self-employment which are less than the small profits threshold (£6,025 for 2017/18) then there will be no class 2 NIC due.
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.
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. For the 2017/18 tax year your Class 2 NI liability is automatically calculated as part of the self assessment process and included with the tax you are due to pay on 31 January 2019.
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. But you will have to pay 2% Class 4 NIC on all profits above the level of £8,164 (2017/18 rate). Your Class 4 NIC liability will be automatically calculated as part of the self assessment process.
This was way of deferring (that is delaying) payment of Class 4 NIC liabilities which was available for the tax years up to and including 2014/15. If you did this, your total NIC liability was reviewed at the year end and any additional NIC due was then collected separately.
You can find details of the benefits to which Class 2 gives entitlement in the 'tax basics section'.
Class 4 NIC do not count towards any state benefits.
When Class 2 NIC is abolished, it is expected that Class 4 NIC will give entitlement to certain benefits but the details are not yet known.
How and when do I pay my Class 2 and Class 4 NIC?
Class 4 NIC is paid along with your income tax liabilities through the self assessment system. For the 2015/16 tax year onwards, Class 2 NIC is also paid via self assessment, as part of the payment due on 31 January following the end of the tax year to which it relates.
If you might have to rely on Class 2 NIC for entitlement of certain benefits, for example Maternity Allowance, you may need to pay your Class 2 NIC before the self assessment deadline. We explain why below.
If you prefer, you can make regular payments of Class 2 NIC throughout the tax year, rather than a lump sum payment. You should contact HMRC to arrange this.
For the tax years prior to this, Class 2 NIC was 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.
Why might I choose to pay Class 2 NIC even if my earnings are below the Small Profits Threshold?
You might want to protect your eligibility to certain state benefits. This is because eligibility for some state benefits relies on you having paid a certain amount of Class 2 NIC within a defined time, The two benefits most likely to be affected are Maternity Allowance and in some specific circumstances, Contributions-based Employment and Support Allowance (ESA).
If this is the case, you should contact HMRC and make arrangements to pay the Class 2 NIC early, before the self-assessment deadline.
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. This is because eligibility for some state benefits relies on you having paid a certain amount of Class 2 NIC within a defined time. The two benefits most likely to be affected are Maternity Allowance and in some specific circumstances, Contributions-based Employment and Support Allowance (ESA).
If this is the case, you should contact HMRC and make arrangements to pay the class 2 NIC early.
Entitlement to maternity allowance is based on National Insurance contributions paid in the 66 weeks before the baby is due. This period is known as the test period.
There are two levels of maternity allowance:
- The standard rate for which you must be self-employed for 26 weeks in that test period and have paid Class 2 NIC for 13 of them; and
- The lower rate for which you must be self-employed for at least 26 weeks in that test period and have earnings of at least £30 per week on average.
As an example, if your baby was due in August 2017, then you would have had to pay sufficient contributions in the 66 weeks leading up to that date – broadly from May 2016 to August 2017. Payment of your Class 2 NIC for the tax year 2016/17 is not due until 31 January 2018, so these contributions would not have been paid at the time you make a claim for Maternity Allowance.
Although the Class 2 contributions are not due until 31 January 2018, you can choose to pay them early. Paying early contributions may mean you will have paid enough to receive standard rate of maternity allowance.
If you have not paid your contributions early or have not paid enough, when you make the claim for maternity allowance, you will be given the opportunity to make a lump sum payment of Class 2 contributions to enable you to claim the standard rate Maternity Allowance if appropriate – HMRC will work out how many weeks contributions need to be paid and then issue a bill for this amount.
How does the payment of class 2 NIC affect entitlement to Contributions-based employment and Support Allowance (ESA)?
ESA is paid to be people who are unable to work due to illness. Normally, in order to be paid ESA in the current benefit year (which runs from January to December) you must have paid the following National Insurance contributions:
- In one of the previous two complete tax years before the benefits year, you must have paid 26 weekly contributions; AND
- In both of those two previous complete tax years, you must have paid or been credited with 50 weekly contributions.
As an example, in order to claim ESA in December 2017, you must have paid at least 26 weekly contributions in either of the two tax years 2014/15 and 2015/16. In addition, you must have paid or been credited with 50 weekly contributions for both of those tax years.
In reality this change is only likely to affect you if you claim ESA between the first Sunday in January and 31 January in a year because only at that time are you unlikely to have paid the contributions necessary.
It is important that you pay your National Insurance contributions early so that your claim is not delayed, if you need to.
You should note that there are some exceptions to the above contributions conditions for ESA but the information here covers most situations.