National Insurance For The Self-Employed Explained

April 21, 2017 9:26 am Published by

National Insurance Class 2 Notification LetterAs part of the Spring Budget, Philip Hammond announced that the main rate of National Insurance Contributions (NIC’s) for the self-employed would increase, with Class 2 NIC’s being abolished, and Class 4 NIC’s rising to 11% by April 2019.

Fortunately for the over 4.6 million Self Employed workers in the UK, the plan to hike NIC’s was scrapped. So, what is NI? What is it used for? And how much do the Self-Employed Pay?

What Is National Insurance and What Is It Used For?

If you’re working for an employer you will see an amount for National Insurance (NI) being deducted from your paycheck, as well as your Income Tax (also known as PAYE). If you are self-employed – you’ll pay your NI when you complete your Self-Assessment, the amount of NIC’s varies dependant on your income.

National Insurance is paid to entitle you to various state benefits such as a pension and maternity allowance – your NIC’s also go towards important services in the UK such as the National Health Service, disability allowances and unemployment benefits.

The Current Rates Of NI For The Self Employed

The Self Employed will pay two different classes of NIC, Class 2 and Class 4. As mentioned, the Self Employed will pay their NIC’s with their Self-Assessment return, this is done by deducting their expenses from their income and working out total profits for the year.

Class 2 NIC’s – If your profits total up to £8,164, you will be required to pay Class 2 NI, this totals £2.85 per working week. Class 2 NI can be paid as a lump sum, or as regular weekly payments to HMRC.

Class 4 NIC’s – If you earn between £8,164 and £45,000 profit throughout the tax year, you will pay 9% of this profit as your Class 4 NIC. However, if you earn over the threshold (£45,000+) you will only be required to pay 2% NIC on your profits above £45,000.

The Small Profits Threshold – If your profits are less £6,025 than for the year, you will not need to pay Class 2 NI – however, you will have the option to do so voluntarily in order to protect your entitlement to state benefits such as a state pension and disability allowances if applicable.

When and How To Pay Your National Insurance Contributions – 2017 Deadlines

If you are Self-employed, you will pay your NIC’s through your Self-Assessment tax return, here are the important dates for the tax year starting 6th April 2017.

  • 31st January 2017 – This is the deadline for the first payment on your account for the tax year ending 5th April 2016, this should have been paid already to avoid penalties.
  • 31st July 2017 – this is the deadline for making the 2nd payment on your account for the tax year ending 5th April 2016.
  • 5th October 2017 – This is the deadline to register as Self-Employed with HMRC for tax purposes for the upcoming tax year.
  • 31st October 2017 – This is the deadline for submission of paper Self-Assessment tax returns, if you send the form after this date there will be a penalty – even if you have no tax to pay.
  • 31st January 2018 – This is the deadline for online Self-Assessment tax returns, again, there are various penalties for late submissions so make sure you get it done on time.

Alternatively, if you want to pay advance, HMRC allow you to set up a ‘budget payment plan’ to enable you to make regular weekly or monthly payments in advance, for more information the payment plan, see GOV.UK’s dedicated page.

Need A Hand? Accounting For The Self Employed

One of the most important aspects of accounting when self-employed is keeping good records and ensuring payment deadlines for Self-Assessment are met. At First Call, we work with you to help you keep on top of your accounts, saving you time, money and allowing you to grow your business.

For more information about the services we provide to the self-employed, give us a call on 0117 3790810.

Steph Roffey

Steph is a Chartered Accountant with many years’ experience working in audit compliance and general accountancy. She is a Fellow of the ICAEW and has extensive knowledge of accountancy and tax for the self employed.

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This post was written by Steph Roffey

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