If you are self-employed, you can choose to pay either Class 2 or Class 4 National Insurance Contributions. These are called “self-assessment rates”.
The difference between Class 2 and Class 4 depends on how much money you make.
You can use our calculator to see how much you might pay.
How much National Insurance do I need to pay on my earnings from self-employment?
Self employment includes running a business, freelance, or working part-time without being employed full-time. You can work for yourself without having to register for VAT. If you earn £50,000 or less each year, you don’t have to pay Class 2 National Insurance contributions (NIC). This is because you’re considered to be earning enough money to qualify for one of the lowest rates of NIC. However, if you earn over £50,000 per annum, you’ll still have to pay Class 2 contributions.
In addition to this, there are different rules for married women and widows who receive lower rates of NI. They won’t have to pay Class2 NIC. These people are entitled to lower rates due to their status as single parents, pensioners, careers, students, etc.
If you want to find out how much tax you owe, it’s important to understand what class of NIC you’re paying. There are three classes of NIC:
Class1 – Employed workers
Class2 – Self-employed individuals
Class3 – Non-UK residents
You can check whether you’re eligible for Class 2 NIC by looking up your earnings online. Once you’ve found out what class of NIC you should pay, you can use our calculator to see how much you might owe.
What is self-employment income for purposes of Class 2 NIC?
Self-employed income is any income earned via work carried out outside of paid employment. This includes income from running a business, investing, renting property, working as a freelancer or receiving dividends.
Income from self-employment is taxable and classified as ‘NIC2’. Income from self-employed activities cannot be claimed tax relief.
How do I enroll in Class 2 and Class 4 NIC?
To register for class and NIC, you must complete an online application. This includes completing an online form and uploading required documents. You will receive confirmation of your registration via email. If you are unable to access your account, please contact us.
You must register before beginning employment. We recommend registering prior to the start date of your contract to ensure that you receive the correct documentation.
If you require assistance with completing the online form, please contact our Customer Service team.
How do I know how much to pay?
The government has announced that self-employed workers will now have to pay income tax every week. This includes anyone earning over £8,500 per annum, regardless of whether they make money from their job.
But what does it mean for you? How do you calculate how much tax you should pay each week? And what happens if you don’t pay enough?
We’ve put together some handy tips to help you figure out how much you owe.
So, how much do I pay for Class 4 NIC?
Frank works for himself and runs a small business. He makes about £10,000 per annum from his business. He wants to know what his Class 4 NIC liability is.
Income Tax Act 2006 section 5(1)(a) states: “A person shall be liable to pay income tax under this Part on
(a) any gains derived by him from dealings in property.”
The definition of ‘dealings’ includes transactions such as buying and selling goods and services, renting out land, receiving interest payments, and making investments.
If you are running a sole trader or partnership, the amount of your Class 4 NIC liability is calculated by multiplying your total net profits by 0.25% (0.25%) for every pound above £11,908. This calculation applies whether you earn £100 or £1 million.
How and when do I pay my Class 2 and Class 4 National Insurance contributions?
If you’ve got a lot of money coming into your bank account during the course of the tax year, you might want to consider making some of those payments early. This way, you can avoid paying interest charges on the amount outstanding.
The good news is that you can still pay your Class 2 and Class 4 National Insurance contributions (NIC) on account up until the end of the tax year. You just need to make sure you keep track of how much you owe and pay it off as soon as possible.
You’ll need to start thinking about this now, because once the end of the tax month arrives, you’ll no longer be able to make payments on account. In fact, you’ll need to pay the full amount due by 31 January following the close of the tax year. But don’t worry – there are plenty of ways to avoid incurring interest charges on the amount owed.
How does Class 2 NIC compare to Class 4 NIC?
For those who are selfemployed or working part-time, there is no threshold to qualify for Class 2 NIC. If you earn less than £6,724 per annum, you don’t pay any NIC. But if you make more than £11,907, you’ll start paying Class 2 NIC.
If you’re earning between £11,907 and £16,845, you’ll pay Class 3 NIC. And if you earn over £16,846, you’ll pay Class 4 NIC.
The amount you pay depends on how much money you earn each month. So if you earned £1,500 in January, you’d pay £3,000 in Class 2 NIC. If it was £2,000, you’d pay £4,000.
And if you earned £5,000 in February, you’d pay £12,000 in Class 4 NIC. If you earned £6,000, you’d still pay £12,000.
You can find out what your NIC payments are by logging into My Account and clicking on ‘Payments’.
What is the Profit Margin Threshold?
For the 2022/23 tax year, there is a new small profits threshold called the Small Profit Threshold which is £6,724. This relates to Class 2 National Insurance Contributions (NIC) and applies to those who are self employed and earn between £6,521 and £12,000 a year. Those earning over £12000 a year must pay Class 2 NI contributions.
The Government announced the change in the Budget on Wednesday 4th July 2020.
What are the minimum allowable profits?
For the 2022/23 tax year, the Lower Profits Limits are £11,908 for individuals and £22,818 for couples. This is the amount you can earn without paying class 2 National Insurance contributions (NIC).
The rules around what qualifies as self-employment income mean that some people will not be affected by the change. If someone earns less than the threshold, they won’t pay class 2 NIC, but they’ll still be charged class 4 NIC.
If someone makes over the threshold, they’ll pay both classes of NIC.
How do I determine if I am eligible for reduced rate contributions?
If you are married, you can make a claim for a reduced rate of pension contributions if you meet certain criteria. You must either be married for over ten years or be divorced or widowed. To find out whether you qualify, you can use our online calculator.
You must meet one of the following conditions:
• You are married for over ten years.
• You are divorced or widowed.
• You are over 65.
• Your partner is aged 60 or older.
The rule applies to both men and women. However, it does not apply to people born before 5 April 1952.
I am employed and self-employed. Do I still need to pay Class 2 NIC?
You will always need to pay class 1 National Insurance contributions (NIC). But does it matter whether you are employed or self-employed? If you are employed, you must contribute class 1 NIC to HM Revenue & Customs (HMRC), regardless of how much you earn. You do not need to make any additional payments.
If you are self-employed, however, you do not need to pay class 1 NIC unless you earn over £10,000 per year. To qualify for this exemption, you must meet certain conditions. These include having no employees; being registered as a sole trader; and paying yourself a salary of at least £10,000 per tax year.
I am employed and self-employed. Do I still need to pay Class 4 NIC?
If you are employed and earning less than £10,000 per annum, you do not need to pay Class 4 National Insurance Contributions (NIC). However, if you are self-employed and earning less than £7,500 per annum, you must pay Class 4 NIC.
There is a big difference between what employers and employees pay into national insurance contributions (NIC), because there are different thresholds. For example, if you work for yourself, you might make less than £7,5k per annum, but your employer might pay you over £10k per annum. This means that you could potentially end up paying more tax than your employer does.
This is why it’s important to check how much you earn before deciding whether you need to pay Class 4 NI.
Frequently Asked Questions
What assistance is available for the self-employed?
The government has launched a range of free support services designed to help people start up and run their own businesses. These include:
Business Gateway – a one stop shop for entrepreneurs looking for information about starting their own business;
Start Your Own Business Advice Service – providing practical guidance and support to anyone thinking about becoming self-employed;
Help With Starting A Small Business – supporting small businesses with advice, training and funding opportunities;
Help Start Your Own Business – helping individuals find the best way to set themselves up as independent traders;
Get Help From Us – offering expert advice and support to help you make the most of the support offered by the government.
What you must do when launching a firm and going into business for yourself
There are many different ways to start a business. You could set up a sole trader, or open a limited company, or even become self-employed. Whatever route you choose, you’ll need to decide what type of business you want to run. There are lots of options here – from retail to consultancy – and each one requires slightly different paperwork. Here we look at some of the key considerations you’ll need to make when deciding how to go about running your own business.