How Does National Insurance Work for the Self Employed

When you are self employed, you are responsible for managing your own National Insurance contributions (NICs). Unlike employees, where contributions are automatically deducted through payroll, self employed individuals must calculate and pay National Insurance as part of their annual Self Assessment tax return. Paying NICs is essential because it helps you qualify for benefits such as the State Pension, maternity allowance, and certain welfare entitlements. This article explains how National Insurance works for the self employed, what the different classes mean, and how to make sure you pay the right amount.

What Is National Insurance

National Insurance is a tax paid by workers and employers in the UK to fund state benefits. These benefits include:

  • The State Pension.

  • Maternity Allowance.

  • Employment and Support Allowance (ESA).

  • Bereavement benefits.

For self employed people, paying National Insurance ensures you build up contributions toward these entitlements. The amount you pay depends on how much profit you make in a tax year.

The Two Types of National Insurance for the Self Employed

Self employed people usually pay two types of National Insurance contributions: Class 2 and Class 4.

1. Class 2 National Insurance
Class 2 NICs are a flat weekly amount paid by most self employed individuals who earn above a certain threshold.

  • For the 2024–25 tax year, Class 2 contributions are £3.45 per week.

  • They are payable if your annual profits are above £12,570.

  • If your profits are below £6,725, you can make voluntary Class 2 contributions to protect your eligibility for the State Pension and benefits.

Class 2 NICs are designed to ensure all self employed workers, regardless of income level, maintain access to basic state benefits.

2. Class 4 National Insurance
Class 4 NICs are based on a percentage of your profits.

  • You pay 9 percent on profits between £12,570 and £50,270.

  • You pay 2 percent on profits over £50,270.

Class 4 contributions do not count towards benefits such as the State Pension, but they are mandatory once your income exceeds the threshold.

Both Class 2 and Class 4 NICs are calculated and collected through your Self Assessment tax return.

How National Insurance Is Calculated and Paid

As a self employed person, you report your income and expenses to HMRC each year through the Self Assessment system. Your tax return automatically calculates how much Income Tax and National Insurance you owe.

The steps are as follows:

  1. You register for Self Assessment when you become self employed.

  2. Each year, you submit your tax return by 31 January following the end of the tax year (5 April).

  3. HMRC calculates your Class 2 and Class 4 NICs based on your declared profits.

  4. You pay the total amount owed along with your Income Tax bill by 31 January (and possibly a payment on account in July).

If you make voluntary Class 2 contributions, HMRC will include these in your bill, or you can arrange to pay separately.

When You Do Not Have to Pay

You do not have to pay Class 2 or Class 4 National Insurance if:

  • Your annual profits are below the Small Profits Threshold (£6,725).

  • You are under 16 or over State Pension age.

  • You already contribute through another job as an employee and have low self employed income.

However, if your profits are low, it is often beneficial to pay voluntary Class 2 NICs to keep your National Insurance record up to date.

Voluntary National Insurance Contributions

Voluntary contributions are particularly useful if you:

  • Have gaps in your National Insurance record.

  • Are self employed part time with low income.

  • Want to ensure you qualify for a full State Pension.

You can check your contribution record and forecast your State Pension through your online HMRC account. Your accountant can also advise whether voluntary payments are worthwhile based on your circumstances.

How National Insurance Differs from Income Tax

While both are paid through Self Assessment, National Insurance and Income Tax serve different purposes.

  • Income Tax is charged on total taxable income, including employment, self employment, and investments.

  • National Insurance is only paid on earned income (profits from self employment or wages from employment).

Income Tax funds general government spending, while National Insurance contributions specifically fund welfare and pension benefits.

The two taxes are calculated separately, but both must be paid to HMRC by the same deadlines.

Keeping Records for National Insurance

You should keep detailed records of your self employed income and business expenses. This ensures that your profit figure is accurate when HMRC calculates your NICs. Keep:

  • Bank statements and invoices.

  • Receipts for allowable business expenses.

  • Copies of submitted tax returns and HMRC correspondence.

HMRC requires records to be retained for at least five years after the filing deadline for each tax year. Accurate record keeping protects you in case of future queries or reviews.

National Insurance for Partners in a Business

If you are a partner in a business, you are still classed as self employed for National Insurance purposes. You will pay:

  • Class 2 NICs on your share of profits above £12,570.

  • Class 4 NICs based on your total profit share.

Each partner is responsible for their own Self Assessment and contributions, even though the partnership submits a joint return to HMRC.

National Insurance for Limited Company Directors

If you run a limited company, you are an employee of your company rather than self employed.

  • You pay Class 1 National Insurance through the company payroll on your salary.

  • The company pays employer’s NICs on those wages.

  • Dividend payments are not subject to National Insurance, though they are taxed separately.

An accountant can help you balance salary and dividends to achieve a tax-efficient income while meeting all National Insurance obligations.

Checking Your National Insurance Record

You can view your National Insurance contributions and State Pension forecast through your Personal Tax Account on the HMRC website. This allows you to:

  • Check for gaps in your contributions.

  • Verify payments made through Self Assessment.

  • Estimate your State Pension entitlement.

If you notice discrepancies, an accountant or HMRC can help correct them.

How an Accountant Can Help

Managing your own National Insurance can be confusing, especially if you have fluctuating profits or multiple income sources. An accountant can:

  • Register you for Self Assessment and handle your tax returns.

  • Calculate your National Insurance correctly each year.

  • Advise on voluntary contributions to protect your benefits.

  • Ensure you pay on time to avoid interest or penalties.

  • Help you plan for tax and NIC payments throughout the year.

With professional guidance, you can stay compliant and make informed decisions about your contributions and future pension.

Summary

National Insurance for the self employed is made up of two parts: Class 2 contributions, which help build entitlement to benefits, and Class 4 contributions, which are based on profits. Both are paid through the Self Assessment system each year.

If your profits are low, you may not have to pay, but voluntary contributions can help maintain your record. Understanding how National Insurance works ensures you stay compliant and secure your future State Pension. An accountant can simplify the process, calculate accurate contributions, and keep you on track with HMRC requirements.