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, these different classes are summarised in the table below. 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, volunteer development workers, and those engaged as examiners and exam markers 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?
The table below summarises the differences between Class 2 and Class 4 NIC including how much and when you make payments. Class 2 NIC are a fixed weekly amount – £2.95 per week for 2018/19 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 2019 you should pay 9 weeks’ class 2 NIC, ie 9 x £2.95 = £26.55.
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 £8,4244 for 2018/19.
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 2018/19):
|Profit band||Class 4 NI|
|Up to £8,424||nil|
|£8,424 up to £46,350||9%|
Frank has profits of £10,000 for the tax year 2018/19. His Class 4 NIC liability is calculated as follows:
|First £8,424 @ 0%||nil|
|On next £1,576 @ 9%||£141.84|
Henriette has profits of £50,000 for the tax year 2018/19. Her Class 4 NIC liability is calculated as follows:
|First £8,424 @ 0%||nil|
|Next £37,926 @ 9%||£3,413.34|
|£3,650 @ 2%||£73.00|
Class 2 NIC and Class 4 NIC are calculated and paid along with income tax liabilities, through the self assessment system. If you pay your tax through ‘payments on account’ then your Class 4 NIC will also be paid with these instalments, if you do not pay your tax through ‘payments on account’ then the Class 4 NIC will be due on 31 January following the end of the tax year to which it relates. Class 2 NIC is paid as part of the payment due on 31 January following the end of tax year.
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.
How do Class 2 and Class 4 NIC compare?
The table below shows the main points on Class 2 and Class 4 NIC; all rates and thresholds are for the 2018/19 tax year.
|Class 2||Class 4|
|How much do you pay?||£2.95 per week from when you start self-employment.||Usually calculated as 9% on self-employment profits but there is a minimum threshold and an upper limit (see below).|
|Is there a minimum level of profits before you pay NIC?||Yes, you do not have to pay Class 2 if your self-employed profits are below the Small Profit Threshold of £6,205 (see the section below)||Yes, you only pay Class 4 NIC on profits above £8,424.|
|Is there a maximum level of profits when you stop paying NIC?||If you are employed and self-employed and you pay the maximum amount of employees NIC (Class 1) then you may not need to pay Class 2.||
If you have self-employed profits above £46,350 you will pay Class 4 NIC on profits above £46,350 at a rate of 2%.
If you are employed and self-employed and you pay the maximum amount of employees NIC (Class 1) then you may only need to pay Class 4 on profits above £8,424 at a rate of 2%.
|When is it paid?||
It is due by the 31 January following the end of the tax year as part of the self assessment process. It is not included in any payments on account.
|It is paid as part of the self assessment process, so payment may be due as payments on account or by the 31 January following the end of the tax year.|
|How do you pay it?||It is paid as part of your self assessment tax.||It is paid as part of your self assessment tax.|
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.
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. Your Class 2 NI liability is automatically calculated as part of the self assessment process and if you are due to pay any class 2 NIC it is included with the tax you are due to pay on 31 January following the end of the tax year to which it relates.
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. If this is the case then you will have to pay 2% Class 4 NIC on all profits above the level of £8,424 (2018/19 rate). Your Class 4 NIC liability will be automatically calculated as part of the self assessment process.
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.
In view of the Government’s plans to abolish Class 2 NIC from April 2019, it is expected that Class 4 NIC will give entitlement to certain benefits but the details are not yet known.
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 2018, then you would have had to pay sufficient contributions in the 66 weeks leading up to that date – broadly from May 2017 to August 2018. Payment of your Class 2 NIC for the tax year 2017/18 is not due until 31 January 2019, 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 2019, 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 2018, you must have paid at least 26 weekly contributions in either of the two tax years 2015/16 and 2016/176. 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.