Self employed NIC’s

As a self employed person you have to pay two types of National Insurance Contributions (NIC’s), namely Class 2 and Class 4.
For current rates and thresholds see HMRC: NIC’s – rates and allowances.

Class 2

Essentially Class 2 NIC’s entitle you to the state pension when you reach retirement age.
You pay a fixed weekly amount of £2.95 (2018-19) if your taxable income from all self employment is above the Small Profits Threshold of £6,205 (2018-19). HMRC bill you at the end of the tax year.

Class 4

Class 4 NIC’s are more like an additional income tax on profit. You pay these in half-yearly instalments, along with your income tax, by 31/1 & 31/7.
There are lower and upper earnings limits, of £8,424 and £46,350 (2018-19), between which you are taxed at 9% (2018-19). Above the upper earnings limit you are taxed at 2% (2018-19). If you earn less than the lower earnings limit you do not have to pay Class 4 NIC’s. There are other exemption criteria so see HMRC’s website for more details.
For example suppose your taxable profits for the year (2018-19) are £50,000 then you pay Class 4 NIC’s as follows:

	(46,350 - 8,424)  x 9% = 3,413.34 between upper & lower limits
	(50,000 - 46,350) x 2% =   73.00 above upper earnings limit
	Total Class 4 NIC's    = 3,486.34

Beware of overpayment

If you became self employed during the tax year or you are both employed and self employed make sure you haven’t paid too much in NIC’s. This is a common mistake so check thoroughly and claim back any over payments. Similarly you might have paid too much income tax so check that too!

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