If you’re self-employed, it’s not just income tax you need to pay on your profits. You also have to make National Insurance contributions.
What is it and how much?
Firstly what is national insurance? It’s essentially a form of tax that is used to fund state benefits such as the state pension and building up national insurance contributions over your working life entitles you to these benefits. Those on a payroll system will have their contributions taken automatically and will just see it as another deduction on their pay slip. For the self employed it is a little different.
There are two types of national insurance that you need to be aware of. Class 2 and Class 4.
- Class 2 – this is a flat rate charge on the self employed. You pay £2.95/week if your business profits are greater than £6,205 (2018/19)
- Class 4 – these contributions are based on your business profits. More profit = more to pay. As with most things tax related there is a threshold and the first £8,424 of profits are exempt. You then pay 9% on profits between £8,424 and £46,350. This reduces to 2% for profits over £46,350 (2018/19 rates)
Both class 2 and class 4 are calculated and paid with the submission of your self assessment tax return which is due on the 31st January following the end of the tax year.