What National Insurance contributions do I have to pay when I am Self-Employed?
National Insurance contributions can be confusing, even for me, and so I have decided to break it down for you. The Government is currently undertaking reforms to National Insurance contributions, however they haven’t been finalised. During the course of the year I will keep you up to date with these reforms and how they will affect you and your contributions as Self-Employed.
National Insurance Class 2
Class 2 National Insurance contributions are paid each week at £2.85. National Insurance class 2 does not need to be paid if you are under the threshold of £6025 however you can choose to contribute voluntarily.
Why would I voluntarily contribute?
By paying Class 2 National Insurance contributions voluntarily you are protecting your contribution benefits;
- State Pension
- Maternity Allowance
- Bereavement payment/allowance
- Contribution based Employment and support allowance
- Widowed Parent’s allowance
How do I pay class 2 National Insurance?
You can no longer pay via Direct Debit since the 2015 reforms. The introduction of the Small Profit threshold meant its now collected with National Insurance class 4 via your Self-Assessment (Tax Return). If you are not above the threshold and are able to automatically select an option to pay voluntarily via Self-Assessment.
Class 4 National Insurance
Class 4 NI does not entitle you to benefits but this is collected via Self-Assessment. Class 4 is payable as a percentage of profits and the current threshold is over £8164 and below £45000 profit per year.
If your profits exceed £45000 2% payable after that.
The Government is looking at simplifying and moving towards a digital tax system and part of these reforms is to address the current National Insurance system. The National Insurance consultation paper outlines the reforms due to take place in April 2018 to National Insurance. The main points are below and we will continue to update you before implementation of these reforms in 2018;
- National Insurance Class 2 to be abolished
- National Insurance Class 4 to include contribution benefits to replace class 2