National Insurance for the self-employed

If you are self-employed you will normally pay class 2 National Insurance and class 4 National Insurance.

If you are self employed as an actor, or as a teacher in a private school, there special rules. In certain circumstances you may pay Class 1 National Insurance, rather than Class 2 and 4 National Insurance, even though you are self employed.

Class 2 National Insurance

Once you start self employment you become liable to pay Class 2 National Insurance. Class 2 costs £2.65 per week (in 2012/13) and is normally paid quarterly by direct debit. When you register with HMRC as self employed, you will be encouraged to set up a direct debit to pay class 2 National Insurance. National Insurance is payable based on the level of your business profits. See the HMRC website for registering on-line at http://www.hmrc.gov.uk/sa/register.htm#4 or contact the Newly self-employed helpline 0845 915 4515.

There are special rates of Class 2 National Insurance for share fishermen and volunteer development workers. For details see the Share Fishermen and Volunteer Development Workers pages on the HMRC website.

Do I have to pay Class 2 National Insurance?

Unless your profits from self-employment are below the threshold for the ‘small earnings exception’ (£5,595 for 2012/13) you will have to pay Class 2 National Insurance.

You can apply to HMRC for this exception using form CF10. Even when you are entitled to an exception, you may wish to pay Class 2 anyway in order to preserve your pension entitlement and certain other State Benefits. If your profits are over the small earnings exception level, you must pay Class 2 National Insurance.

Class 4 National Insurance

If your taxable profits are above the lower Class 4 profit limit (£7,605 for 2012/13) you will pay Class 4 contributions of 9% on profits over this limit. You pay Class 4 National Insurance together with your income tax – usually due by 31 January and 31 July each tax year. If profits are high (over £42,475  in 2012/13) then the rate of Class 4 National Insurance falls to 2% on profits over this higher limit.