National Insurance

National Insurance | Savvy Mums Business

If you’re in business as a sole trader or in an ordinary partnership, you are liable for self-employed National Insurance (NI) contributions. That generally means paying flat-rate Class 2 NI contributions and profit-related Class 4 NI contributions.

Class 2

Class 2 NI contributions are charged at a flat weekly rate of £2.85 (2017-18) and affect your entitlement to some benefits, such as the State Pension. These are due to be abolished, but remain for now.

If you earn less than £6,025 the Small Profits Threshold will automatically be applied when you complete your tax return and you will be exempt from Class 2 NI payments, so will not need to make the payment and will not receive the NI contribution towards benefits.

National Insurance Credits

If you have a child under 12 for whom you receive Child Benefit and you’re not making any Class 2 National Insurance contributions, you may qualify for Class 3 National Insurance credits which count towards your State Pension. However these will not count towards other benefits, such as Maternity Allowance should you have another baby, or Employment and Support Allowance should you become sick.

Class 4

Class 4 NI contributions are based on your level of profits. You do not have to pay any Class 4 NI if your profits are below £8,164 (2017-18). You pay 9% Class 4 NI on profits from £8,164 to £45,000, and 2% on profits above that.

Class 4 and Class 2 NI contributions become due at the same time as income tax payments and are both calculated through self-assessment. They are then collected twice a year, by 31 January and 31 July.