A Guide To National Insurance For The Self-Employed

A guide to national insurance for the self-employed

Are you self-employed and confused about your national insurance contributions? From how much you need to pay, to when you should pay it – we've got the answers to all of your national insurance questions.

What is national insurance?

In short, national insurance is a form of tax paid by workers, employers and the self-employed in the UK, to fund and qualify for certain state benefits. The amount you pay is based on your earnings or your profits.

Who pays national insurance?

Based on the rates for the 2018/19 tax year, if you're aged 16 or over and earn more than £162 a week as an employee, or are self-employed and make a profit of £6,205 or more a year, you'll need to pay national insurance.

What does national insurance pay for?

National insurance contributions pay for things like the state pension, jobseeker's allowance, maternity allowance and bereavement support payments. They also go towards the NHS and sickness and disability allowances.

How much national insurance should I pay?

It depends what national insurance class you fall into. To work this out, you need to know your official employment status.

While you might assume you count as self-employed, if you're on the payroll for one job but are self-employed in another, it can be a bit more complicated. If in doubt, try the HMRC Employment Status Indicator tool.

Status sorted? Most self-employed people pay class 2 national insurance. This is based on your profits being at least £6,205 during the 2018/19 tax year (or £6,025 in the 2017/18 period).

If your profits are £8,424 or more in the 2018/19 tax year (or £8,164 in 2017/18) you'll also need to pay class 4 national insurance contributions, in addition to class 2.

If you fall into the class 4 band, your national insurance payments will vary, based on the following:

Your 2018/19 tax year profits Your 2017/18 tax year profits The percentage of your profits that you'll pay
£8,424 - £46,350 £8,164 - £45,000 9%
Over £46,350 Over £45,000 2%

There are plans to abolish class 2 national insurance contributions, but the government has delayed decisions until April 2019.

What are voluntary national insurance contributions?

These are contributions you choose to pay, in addition to your standard national insurance rate, to fill any payment gaps you may have had. These might have happened if you were:

  • Unemployed and not claiming any benefits
  • Employed but not earning enough to pay national insurance
  • Self-employed but not making enough profit to pay national insurance
  • Living abroad

Why would you want to voluntarily pay more national insurance? Well, according to the government, gaps in your national insurance contributions can mean you won't have enough ‘qualifying years' of contributions to get the full state pension.

So, it might be in your best interest to pay voluntary contributions and fill these gaps. Want to find out more? Start by checking if you can pay voluntary national insurance contributions.

When do I pay national insurance?

If you're self-employed, you'll probably have to submit a Self Assessment tax return each year. Once you've done this, HMRC will tell you how much tax and national insurance you owe.

For example, for the 2017/18 tax year, you needed to have submitted paper tax returns by the 31st October 2018, or 31st January 2019 for online returns. Then, you'll have been given until 31st January 2019 to pay your tax and national insurance.

What happens if I don't pay national insurance?

If you don't pay your national insurance contributions on time, expect a fine from HMRC. You'll usually receive a Notice of Penalty Assessment, after which you have 30 days to pay. HMRC will tell you how to pay the penalty and what to do if you want to appeal. If you fail to pay it on time, you could be charged interest on top of your fine.

Do you have more finance-related questions that you want answered? Read our back-to-basics guide to VAT or find out when you should hire an accountant for your small business.

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Added: 02 Jan 2019