Nobody enjoys seeing deductions come out of their hard-earned cash, but paying National Insurance is one of the necessary evils of self-employment. The amount that you pay towards NI depends on how much you earn, and even how you earn it, such as through an employer or as someone who works for themselves.
Why do I need to pay National Insurance?
Making National Insurance Contributions, or NICs, counts towards your eligibility for some types of state benefits, and towards your state pension. If you don’t make the full amount of contribution each year, you might not be able to receive the full amount of state pension when you reach retirement age.
Do I need to pay National Insurance if I’m self-employed?
There are different types of National Insurance (NI), known as classes. These classes tell us who is making the contribution, what rate they must pay, and on what type of income. The type of National Insurance you pay on your self-employed profits is different to the NI contributions you make through an employer.
Types of self-employed NI
|Type of NI||How much is it?|
|Class 2||This is a weekly flat rate of £3.15|
|Class 4||Class 4 NI is worked out as a percentage of your profits from self-employment.|
How much National Insurance will I pay if I’m self-employed?
NI is a bit different for self-employed people because rather than paying it on your income, you pay it on your profits. As a self-employed sole trader, your profits are what’s left after you deduct business expenses from the money you make on sales.
It’s an important point, because otherwise you’d end up paying tax and NI on money you didn’t actually get to keep! We’ll talk you through the NI rates and when you’ll start paying them.
How much can I earn before starting to pay self-employed NI?
In the 2022/23 tax year you’ll only start paying Class 2 and Class 4 NI when your profits reach the Lower Profits Limit (LPL). This tax year the threshold changes during the year, so there’s an ‘annualised’ amount (basically the overall threshold for the year).
- 6th April – 5th July 2022: £9,880
- 6th July onwards: £12,570
- The threshold for the year: £11,908
2022/23 National Insurance for self-employment
|Threshold||What you pay|
|£0 – £6,724||You won’t pay NI on your profits in this band, but you can choose to make voluntary contributions to fill any gaps in your NI record.|
|£6,725||Small Profits Limit
|£11,908||Lower Profits Limit
|£50,270||Upper Profits Limit
The Health and Social Care Levy and National Insurance
National Insurance rates are changing to accommodate a new Health and Social Care Levy. In 2022/23 the levy is included in Class 4 National Insurance, but from 2023/24 onwards, it will be separate.
- You’ll still start paying Class 4 NI on self-employed profits which is more than the Lower Profits Limit, but at a rate of 9%, and then an extra 1.25% Health Care Levy.
- For earnings above the Upper Profits Limit, you’ll pay Class 4 NI at a rate of 2%, plus a 1.25% Health Care Levy.
What happens to my National Insurance if I work for myself and for an employer?
Unlike tax, which is based on your total profits for the year, National Insurance is paid depending on how you earn the money.
In short, how much you earn from your employer might affect which rate of income tax you pay on your self-employed earnings, but it won’t impact your National Insurance. Employed NI and self-employed NI are separate!
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