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Self-employed National Insurance

If you are in business as a sole trader or in a partnership, you are liable for self-employed National Insurance (NI) contributions. That generally means paying flat-rate Class 2 NI and profit-related Class 4 NI.

Paying self-employed National Insurance contributions

You register to pay self-employed National Insurance contributions (NICs) as part of registering for tax self-assessment.

Class 4 and Class 2 NI contributions are due at the same time as income tax payments and are both collected through self-assessment — twice a year, by 31 January and 31 July.

Existing self employed workers can continue using existing direct debit arrangements for Class 2 NICs until July 2015. Newly self employed people cannot opt to pay by monthly direct debit.

You do not have to make Class 4 or Class 2 NICs if you are under 16 or have reached state pension age.

Class 4 NI

Class 4 NI contributions are based on your level of profits. You do not have to pay any Class 4 NI if your profits are below £8,060 (2015-15). You pay 9% Class 4 NI on profits from £8,060 to £42,385, and 2% on profits above that.

If you have more than one business, special rules can apply to the calculation of Class 4 NI contributions in some circumstances — for example, if one of your businesses makes a loss.

Class 2 NI

Class 2 NI contributions are charged at a flat weekly rate (£2.80 a week, 2015-16) and affect your entitlement to some benefits, such as the state pension.

The small profits threshold applies if your earnings are small (below £5,965). Where this is the case, no Class 2 NICs are payable and an exemption is no longer required.