So, you’ve decided you’re going to take the plunge and go self-employed. But how do you know what National Insurance you’ll need to pay? When you become self-employed, you become responsible for paying your NI and tax on your income, so you’ll need to be organised and maintain all of your records to ensure you know what you will need to pay. Unfortunately, this isn’t always straightforward as it can vary based on the industry of your employment and whether you are both employed and self-employed. So, we’ve outlined some of the key considerations for working out your National Insurance.
National Insurance Classes explained
When you are self-employed, there are two Classes of National Insurance that may apply to you.
Class 2 NICS
If your profits are £6,205 or more in the 2018/19 tax year, you will be required to pay Class 2 NICS of £2.95 a week.
Class 4 NICS
If your profits exceed £8,424 (up to £46,350), you will need to pay Class 4 NCIS which is 9% of your profits in the 2018/19 tax year.
For profits exceeding £46,350, you will be required to pay an additional 2% on the excess.
Paying voluntary National Insurance for state benefits
Exemptions and gaps within your National Insurance record
Some people within specific jobs may not be required to pay Class 2 NICS – notably those who run businesses in the land or property sectors. Alternatively, you may have what are known as gaps within your record of paying National Insurance – meaning you will not have made enough contributions over your working lifetime to qualify for a full State Pension. This could be for several reasons, such as having received low earnings from previous employment, made a small profit whilst self-employed or if you were unemployed without claiming benefits for a time.
If this is the case, all is not lost and you may still qualify for a State Pension by paying voluntary National Insurance. However, it’s best to seek professional advice as not everyone will benefit from voluntary contributions; we can provide you with the advice you need around the benefits of paying voluntary contributions.
How do I pay National Insurance?
The key difference in paying National Insurance when you’re self-employed is that you are now responsible for paying this yourself, rather than paying it automatically every month. To do this, you’ll need to complete a tax return (Self Assessment) at the end of the financial year.
We know that this can be daunting for many and deadlines aren’t everyone’s strong point – but don’t worry! That’s why we’re here; we can provide tax and accounting services to help see you through the whole year, not just around tax year end.
If you still feel confused after reading this, don’t worry. At accounting4contractors, we’re here to simplify these processes for you and allow you to focus on the everyday running of your business. If you’d like to discuss taxes or National Insurance with experts who understand the challenges of small businesses, get in touch with us today.