Every working person in the UK over the age of 16 has to pay National Insurance if they’re an employee earning more than £184 a week, or they’re self-employed and making a profit of more than £6,515 a year.
It’s paid in two different ways. If you’re an employee on a payroll system, your contributions will be taken automatically through PAYE, so you never even see the money. Those who are self-employed have to organise their payments via their self-assessment tax return.
Your National Insurance contributions go towards state benefits, like statutory sick pay, maternity leave, NHS healthcare and the state pension. It’s worth noting, though, that you usually have to pay National Insurance for a certain number of years to qualify for the state pension.
What you pay depends on how much you earn, but it can be difficult for self-employed people to calculate what they owe. Tax and National Insurance can be a tricky subject to get your head around, so we’ve put this guide together which will hopefully make things a bit clearer.
For the tax year 2021/22, if you’re self-employed you have to pay Class 4 National Insurance contributions at nine per cent on the profit you make annually between £9,568 and £50,270. The National Insurance you pay is reduced to two per cent on profit above £50,270.
Self-employed people making annual profits of more than £6,515 have to pay Class 2 National Insurance, while employed people pay Class 1. Anyone can choose to make voluntary contributions, which is called Class 3 National Insurance.
In this article, we’ll explain more about the different classes of National Insurance, outline how much you can expect to pay depending on your circumstances and advise on how to go about submitting a tax return.
Depending on what you earn and your employment status, you’ll have to pay a particular class of National Insurance. The classes are as follows:
Class 1 National Insurance contributions
Employees who are under the state pension age and earn more than £184 per week will have their National Insurance contributions deducted by their employer.
The rate is 12% of earnings up to £967 per week, reducing to 2% on earnings over £967 per week.
Class 1A or 1B National Insurance contributions
These are paid by employers directly on their employees’ benefits or expenses.
Class 2 National Insurance contributions
Self-employed people making a profit of more than £6,515 per year have to pay a fixed weekly amount of £3.05 for the tax year 2021/22.
If your profits are below the Small Profits Threshold (currently set at £6,515), you don’t have to pay Class 2 National Insurance.
Class 3 National Insurance contributions
Even if you’re not required to pay National Insurance, you can choose to make voluntary – or Class 3 – contributions to fill or prevent the gaps in your National Insurance record that could affect your entitlement to the state pension.
To see whether you’re eligible to make Class 3 contributions, you can check your National Insurance record on the government website.
Class 4 National Insurance contributions
If you’re self-employed and earn profits of £9,568 or more a year, you have to pay Class 4 National Insurance. The rate is nine per cent on annual profits between £9,568 and £50,270 and two per cent on profits more than £50,270.
The following self-employed people aren’t required to pay National Insurance contributions through Self Assessment:
- Religious ministers, as long as they don’t receive a salary or stipend
- Examiners, moderators and invigilators
- People who make investments without receiving a commission or fee
However, they may choose to make voluntary (Class 3) contributions.
You don’t have to pay Class 2 National Insurance if you are a married woman who opted into the Reduced Rate scheme before April 1977 and separate rules apply to voluntary development workers and share fishermen.
People under the age of 16 don’t have to pay National Insurance, nor do those over the state pension age. You stop paying Class 1 and Class 2 National Insurance when you reach the state pension age, and you stop paying Class 4 contributions from 6th April, after you reach the state pension age.
If you’re an employee but also do self-employed work, you’ll have Class 1 National Insurance deducted from your wages by your employer and you may have to pay Class 4 or Class 2 National Insurance for your self-employed work too.
After you’ve filed your self-assessment tax return, HMRC will let you know how much National Insurance is due.
If you pay the maximum amount of Class 1 and Class 2 contributions, you may not have to pay the full amount of Class 4 National Insurance. In this scenario, you would pay Class 4 National Insurance on profits of more than £9,568, at a rate of two percent, rather than nine percent.
Your Class 4 liability will be calculated automatically when you file your self-assessment tax return.
You must file your return and pay your income tax and Class 2 or Class 4 National Insurance contributions by 31st January each year. If you’d prefer to pay your bill in instalments rather than one lump sum, you can contact HMRC and make arrangements for this.
The quickest and easiest way to submit your Self Assessment tax return is on the government’s website.
You usually need to have been paying National Insurance contributions for 30 years to qualify for the full basic state pension and 10 years to get the new state pension.
If you have a spouse or civil partner, you may be able to increase or inherit your basic state pension and if you’ve lived or worked abroad, or you’ve paid married women’s or widow’s reduced rate contributions, you could still be entitled to some new state pension.
Class 4 National Insurance applies to self-employed people who earn profits of more than £9,568 a year. However, there are some exceptions to paying it.
While Class 1 contributions are deducted through payroll automatically, Class 4 contributions are done via a self-assessment tax return, which must be submitted to HMRC each year.
Once you reach state retirement age, you will no longer be required to pay National Insurance.