What National Insurance do I pay if I am self-employed? | Low Incomes Tax Reform Group

October 30, 2022

0 85 11 minutes read

How to Sell Cyber Insurance | ProWriters Insurance

for more general information about nic visit what is national insurance?. If you would like information on how to obtain a national insurance number (child) or what to do if you have lost or forgotten your child, please visit our national insurance number page.

Maybe you are interested

what national insurance do I have to pay on self-employment income?

You only pay National Insurance Contributions (NICs) between the ages of 16 and state retirement age. You can find out your state retirement age using the calculator at gov.uk.

Reading: What is class 4 national insurance

Currently, you pay two different classes of NICs if you are self-employed and earn enough earnings: Class 2 and Class 4. These different classes are summarized in the table below. If you are a married woman or a widow and you are entitled to contribute at a reduced rate, you do not need to contribute class 2 nic. there are also special rules relating to shared fishermen, volunteer development workers and those involved as examiners and test graders which you can read about on gov.uk.

what is the income of the self-employed for purposes of class 2 nics?

This includes not only income that we might traditionally think of as self-employment income, but also anyone who conducts a business activity, even if it may be considered an investment activity, such as renting property. Keep in mind, however, that we are talking about a commercial activity. renting a single property is unlikely to amount to commercial activity.

how do i register for classes 2 and 4 nic?

When you register with hmrc as self-employed, registration covers both income tax and national insurance. you can get information about registration at how do I register for taxes and national insurance?. If you do not register your self-employment with HMRC, HMRC may reject any Class 2 NIC payments, or Class 2 NIC payments you are deemed to have made may not be registered. it is not enough to indicate on your tax return that you have started self-employment. instead, you must follow the hmrc self-employment registration process even if you are already completing self-assessment tax returns for other reasons.

How do I know how much to pay?

The table below summarizes the differences between class 2 and class 4 nics, including how much and when you make payments. class 2 nics are a fixed weekly amount: £3.15 per week for 2022/23 (£3.05 per week for tax year 2021/22) if you have earned enough earnings (see below).

Rules for class 2 nic have changed for fiscal year 2022/23 onwards.

Before tax year 2022/23, you had to pay class 2 NICs if your earnings exceeded the small earnings threshold, which was £6,515 in tax year 2021/22.

From 2022/23, you pay class 2 nics if your earnings exceed the lower earnings limit (which is £11,908 in 2022/23). If your earnings are below the small earnings threshold (£6,725 in 2022/23), then you can choose to pay class 2 voluntary NICs. If your earnings from self-employment are between the small earnings threshold and the lower earnings, then no class 2 nic to pay; instead, you will be treated as if you were making a class 2 nic. This will mean that you will be able to access the right to tax benefits in the same way as if you had paid a class 2 nic.

for 2023/24 onwards, the lower profit limit will be the same amount as the personal income tax bonus.

The amount of Class 2 NICs due is based on the number of weeks you are self-employed in the tax year. a week goes from sunday to saturday. if a contribution week covers two fiscal years, it is considered to correspond to the previous year.

for example, if your self-employment started on 5th February 2023, you need to pay for 9 weeks of class 2 nics for 2022/23, i.e. 9 x £3.15 = £28.35 as there is 9 weeks between February 5, 2023 and April 5, 2023 (that trading week ends on April 8).

Class 4 NICs are based on the level of your self-employment earnings. You are only required to pay Class 4 NIC if your earnings exceed the lower earnings limit. this is £11,908 for 2022/23 (£9,568 for fiscal year 2021/22).

so how much should i pay for class 4 nic?

You pay class 4 nic on your taxable self-employment earnings (on the same basis as for class 2 nic above). the nic is paid out in earning bands as follows (figures shown for 2022/23):

profit band

class 4 nic

up to £11,908

zero

£11,908 up to £50,270

9.73%

over £50,270

2.73%

Class 4 NIC rates increased beginning in FY 2021/22 (ie, from 9% to 9.73% and from 2% to 2.73%). rate increases take into account amounts due for the health and social assistance rate that was in effect during the four-month period, July 2022 – October 2022.

example

frank has earnings of £13,000 for the 2022/23 financial year. your class 4 nic liability is calculated as follows:

first £11,908 @ 0%

zero

on the next £1,092 at 9.73%

£106.25

total due

£106.25

example

henriette has earnings of £55,000 for the 2022/23 financial year. your class 4 nic liability is calculated as follows:

first £11,908 @ 0%

zero

next £38,362 @ 9.73%

£3,732.62

£4,730 at 2.73%

£129.13

total due

£3,861.75

How and when do I pay for my class 2 and class 4 nic?

Class 2 NICs and Class 4 NICs are calculated and paid together with the income tax obligations, through the self-assessment system. if you make payments on account then your class 4 nic will be included in the calculation of the installments. If you do not pay your tax through income on account, then the class 4 nic will expire on January 31 following the end of the fiscal year to which it refers. class 2 nic is paid as part of the payment due on January 31 following the close of the fiscal year, regardless of whether or not you make payments on account.

If you have to rely on the class 2 NIC to qualify for certain benefits, for example maternity allowance, you may need to pay your class 2 NIC before the self-assessment deadline. we explain why below.

If you prefer, you can make regular class 2 nic payments throughout the tax year, instead of a one-time payment. you need to contact hmrc to arrange this.

how do class 2 and class 4 nics compare?

The following table shows the main points of the class 2 and class 4 nics; all rates and thresholds are for fiscal year 2022/23.

class 2

class 4

how much do you pay?

£3.15 per week for each week you are self-employed, if your earnings exceed the lower earnings limit in that tax year.

calculated as 9.73% of self-employment benefits above the lower benefit limit and 2.73% above the upper limit (see exception below).

Is there a minimum level of earnings before paying nic?

yes, you don’t have to pay class 2 if your self-employment earnings are below the small earnings threshold of £6725 (see section below).

if your earnings are between £6,725 and £11,908 then you are treated as making class 2 contributions even though you do not pay any class 2 nics.

yes, it only pays class 4 nics on winnings over £11,908.

Is there a maximum level of earnings when you stop paying nic?

If you are employed and self-employed and pay the maximum number of employee nics (class 1), you may not have to pay class 2.

If you have self-employed earnings over £50,270, you will pay Class 4 NICs on earnings over £50,270 at a rate of 2.73%.

If you are employed and self-employed and pay the maximum number of employee nics (class 1), you may only need to pay class 4 on earnings over £11,908 at a rate of 2.73% .

When is it paid?

Expires on January 31 following the end of the fiscal year as part of the self-assessment process. it is not included in any payment on account. There are special agreements in place for the Class 2 NIC, expiring on January 31, 2022, which are part of a time-to-pay agreement. you can read about it in our news article

is paid as part of the self-assessment process, so payment may be due as part of any down payment or by January 31 following the end of the fiscal year if not within the scope of down payment.

how do you pay?

is paid as part of your self-assessment tax.

what is the small profit threshold?

this relates to class 2 nic. if your self-employed earnings for tax year 2022/23 are less than £6,725 (the small earnings threshold) (£6,515 for tax year 2021/22 ), then you don’t need to pay for class 2 nic. however, you will have the option to voluntarily pay Class 2 NICs at the end of the tax year.

As of 2022/23, if your earnings exceed the small earnings threshold but not the lower earnings limit, you will be treated as if you had obtained a class 2 nic with no need to pay anything.

what is the lower limit of winnings?

for fiscal year 2022/23 onwards, this relates to both class 2 and class 4 nics.

The lower benefit limit is £11,908 for tax year 2022/23. This means that if his earnings as self-employed for tax year 2022/23 are less than £11,908, then he does not pay any class 2 nics or class 4 nics.

If your self-employment earnings are between the small earnings threshold and the lower earnings limit, then you do not pay class 2 NICs but are treated as if you made class 2 contributions.

How do I know if I have the right to contribute at a reduced rate?

Married women could apply for a reduced contribution rate before 1977. A subsequent annulment of the marriage or divorce immediately terminates the right to pay reduced contributions. If you are not sure whether or not you are entitled to pay the reduced rate, you can check Form CF9 (Married Women) or Form CF9A (Widows) to find out. the same forms are used to waive your right to pay reduced-rate taxes.

I am employed and self-employed. do i still have to pay for class 2 nic?

In general, the answer is “yes”. But if you pay the maximum Class 1 NIC amount on your earned income, you may not need to pay more contributions. Your Class 2 NIC liability is calculated automatically as part of the self-assessment process, provided you file your tax return online or on paper by the due date (usually October 31, after the end of the tax year) and if you are pending payment of any class 2 nic is included with the tax that must be paid on January 31 following the end of the fiscal year to which it refers.

I am employed and self-employed. Do I still have to pay for the class 4 nic?

In general, the answer is “yes”. but if you pay the maximum annual nic amount for class 1 and class 2 contributions, you may not need to pay the full class 4 nic amount. if this is the case, you will have to pay 2.73% class 4 nic on all earnings above the £11,908 level (2022/23 rate). Your Class 4 NIC liability will be calculated automatically, as long as you file your tax return online or on paper by the due date (usually October 31, after the end of the tax year), as part of the self-assessment process.

What state benefits does the class 2 nic payment entitle me to?

You can find the details of the benefits to which class 2 entitles you in the tax bases section.

class 4 nic does not count towards any state benefit.

Why would I choose to pay class 2 nics even if my earnings are below the small earnings threshold?

You may want to protect your eligibility for certain state benefits. This is because eligibility for some state benefits depends on you having paid a certain amount of Class 2 NICs within a defined time. The two benefits most likely to be affected are the maternity benefit and, in certain circumstances, the contribution-based employment and support benefit (ESA).

If this is the case, you must contact hmrc and arrange to pay for the class 2 nic before the self-assessment deadline.

The state pension also depends on whether you have paid or been credited with enough NIC throughout your working life. You can read more about state pension eligibility in our pensioners section.

why might i choose to pay class 2 nics even though i might be exempt because i am entitled to pay reduced rate contributions?

You may want to protect your eligibility for certain state benefits. This is because eligibility for some state benefits depends on you having paid a certain amount of Class 2 NICs within a defined time. The two benefits most likely to be affected are the maternity allowance and, in certain circumstances, the employment and contributory support allowance (ESA).

if this is the case, you should contact hmrc and make arrangements to pay for the class 2 nic ahead of time.

The state pension also depends on whether you have paid or been credited with enough NIC throughout your working life. You can read more about state pension eligibility in our pensioners section.

How does the payment of the class 2 NIC affect the right to maternity allowance?

entitlement to maternity allowance is based on the NIC paid in the 66 weeks prior to the baby’s date of birth. this period is known as the trial period.

There are two levels of maternity allowance:

the standard rate for which you must be self-employed for 26 weeks in that trial period and have paid class 2 nic for 13 of them; and
the lowest rate for which you must be self-employed for at least 26 weeks in that trial period and earn at least £30 per week on average.

as an example, if your baby was due in August 2022, then you would have had to pay sufficient contributions in the 66 weeks prior to that date, generally from May 2021 to August 2022. paying your class nic 2 for tax year 2021/22 does not expire until January 31, 2023, so these contributions would not have been paid at the time you apply for maternity allowance.

Although class 2 fees are not due until January 31, 2023, you can choose to pay them early. paying contributions in advance may mean that you will have paid enough to receive the standard maternity allowance rate. you can contact hmrcon 0300 200 3822 for help with this.

if you have not paid your contributions early or have not paid enough, when you apply for maternity benefit, you will be given the opportunity to make a one-time payment of class 2 contributions so that you can claim the standard rate maternity benefit , if applicable: hmrc will calculate how many weeks contributions are due and then issue an invoice for this amount.

How does the payment of the class 2 NIC affect the right to the contributory employment and support allowance (ESA)?

that is paid to people who cannot work due to illness. Normally, in order to receive the payment of that in the current benefit year (which runs from January to December), you must have paid the following national insurance contributions:

In one of the two full tax years preceding the benefit year, you must have paid 26 weekly contributions; and
In both of those two prior full tax years, you must have paid or been credited with 50 weekly contributions.

As an example, to claim that in December 2022, you must have paid at least 26 weekly contributions in either of the two tax years 2019/20 and 2020/21. in addition, you must have paid or been credited with 50 weekly contributions for both tax years.

Usually, this issue is likely to only affect you if you claim that between the first Sunday of January and January 31 of a year because only then are you unlikely to have paid the necessary contributions. however, due to the coronavirus pandemic, you may have entered into a time to pay agreement. if this is the case please contact hmrcon 0300 200 3822 for assistance as soon as possible.

It is important that you pay your nic early so that your claim is not delayed, if necessary.

You should note that there are some exceptions to the above contribution conditions for that one, but the information here covers most situations.