In the United Kingdom, National Insurance (NI) is an additional tax paid by workers and employers, used primarily to fund state benefits. It is important to understand that NI is paid on top of any other taxes you may have to pay on earnings (as an employee) or profit (if you are self employed) and should be treated separately from these taxes.
NI was initially introduced as a contributory system of insurance against illness and unemployment, and now also provides retirement pensions and other benefits.
You usually pay 2 types of National Insurance if you’re self-employed:
Class 2 if your profits are £6,025 or more a year
If you fall into this bracket, for the 2017/18 tax year you will pay a flat rate of £2.85 per week National Insurance contribution – or £148.20 for the year.
Class 4 if your profits are £8,164 or more a year
If you fall into this bracket, your contribution is calculated as a percentage of your profits. For the 2017/18 tax year this will be charged as:
- 9% on profits between £8,164 and £45,000
- 2% on profits over £45,000
Because your state pension on retirement is paid based on a minimum level of NI contributions made over your working life, even if your profits are less than £6,025 in a year, you should seriously consider making voluntary contributions to ensure you have paid enough NI – otherwise you may not be able to claim a full pension on retirement.
National insurance is usually calculated and collected through the self assessment process and in the same way as you may be required to make payments on account halfway through the year for your personal tax liability, you may also need to make NI payments at the same time too (it varies from person to person so you should seek professional advice).
You can learn more about National Insurance contributions on the HMRC website: https://www.gov.uk/self-employed-national-insurance-rates