National Insurance for the Self Employed

In this article we explain what national insurance is and how much national insurance you will have to pay when you are self employed.

National insurance has had changes over the years but the fundamental concept is that it is a form of tax paid by workers and the self employed to fund state benefits including the state pension.

If you are in employment, your employer will deduct national insurance on your behalf, if applicable, and pay this to HMRC, however when you work for yourself as self employed it works differently.

This article has been written with reference to the 2018/19 tax year (6th April 2018 to 5th April 2019).

 

National Insurance for the Self Employed

 

When you are self employed, there are two types of national insurance you may have to pay – Class 2 and Class 4.

Previously Class 2 national insurance was paid outside of the tax return system, whilst Class 4 was paid as part of your tax return – however both Class 2 and Class 4 national insurance are now paid as part of your self assessment tax return.

 

Class 4 National Insurance

This is purely based on your self employed profits (i.e. it is not affected by other sources of income you have).

It is calculated along with your self assessment tax return and is payable at 9% of profits between £8,424 & £46,350 and 2% for any profits above this (2018/19 rates).

 

Class 2 National Insurance

In the past this was paid directly to HMRC (not as part of your tax return) but this is now paid through your tax return.

It is charged at a rate of £2.95 per week if your business profits are above £6,205 (2018/19 rates).

Both of these national insurances are payable on 31st January following the end of the tax year, through your tax return.

 

Class 4 national insurance is also included as part of your self assessment payments on account.

 

Example national insurance calculation

Let’s look at an example of a self employed sole trader with £50,000 of taxable profits for the 2018/19 tax year, their national insurance calculations would be:

Class 4 national insurance:

  • First £8,424 of profits, £nil
  • Next £37,926 charged at 9% = £3,413 (rounded)
  • Balance of £3,650 charged at 2% = £73

Total class 4 = £3,486

 

Class 2 national insurance

As the profits are above the class 2 threshold of £6,205 the class 2 national insurance is a fixed amount of £2.95 per week, x 52 weeks = £153

Total class 2 = £153

 

Total of both class 2 and class 4 national insurance = £3,639