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How Do I Register For Self-Employed National Insurance Contributions?

2014-05-14 09.38.36.jpg.jpgNational Insurance (NI) is the tax we don’t call a tax.

It’s not simple, but it is easy!

I’ll take you through National Insurance Contributions (NICs) step-by-step so you pay what you need to and no more than that.

What Are National Insurance Contributions (NICs)?

National Insurance started last century as a way of paying for people’s health and welfare, instead of people literally starving to death or being dependent on the parish.

It’s got a bit more complicated since then and no longer is separate. It all goes into the same general tax pot.

  • Class 1 Employer – What employers pay to the government for every employee
  • Class 1 Employee – What every employee pays to the government for every employment
  • Class 2 – What every self-employed person pays to the government
  • Class 3 – Voluntary contributions, to top up to state pension level for example
  • Class 4 – What you pay on wages/profits/other income after a Class 4 ‘personal allowance’ (like the income tax personal allowance but lower)

It’s more complicated than that, however you get the gist.

 

Which National Insurance Contributions Do I Need To Pay As A Sole Trader?

You need to pay Class 2 NICs and Class 4 NICs.

HMRC will send you a Class 2 NICs bill every 6 months. It’s easier to pay by direct debit then you won’t forget. It is a tax bill after all. The amount isn’t high, around £140 a year.

The government is planning to include paying Class 2 NICs as part of your self assessment tax return so keep an eye out for that in future tax years.

With Class 1 NICs, you get credits towards state benefits like a state pension, sick pay and parental leave/maternity pay. You don’t get any benefit for paying Class 2 NICs. You just pay them.

One part of what I do with coaching clients is to look at their individual situation and help them understand how different business legal structures can effect your NI record. It’s very important if, for example, you want to claim parental leave/maternity pay in the next few years or if you have built up years of contributions.

Do you have multiple sole trader businesses? You only pay one ‘lot’ of Class 2 and Class 4 NICs.

Do you have a job and a business? Later I’ll explain how to check you aren’t paying too much NI. If your sole trader profits are super low, I’ll tell you about the exemption a bit later too.

Class 4 NICs kick in after an ‘allowance’, a bit like with income tax. The amount is lower than for income tax and also changes most/every year. It’s currently 9% of your profits for tax after the allowance has been applied. (Your actual profits will be lower).

If you have a job or other income which uses your NI ‘allowance’ (e.g. an occupational pension), then you will pay 9% Class 4 NICs on all your profits for tax up til the limit. I’ll explain about the limit later.

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A photograph of cake to regain your attention. Keep focus!

How You Register For National Insurance Contributions When You Start Self-Employment

When you register as a sole trader with HMRC, you should be automatically registered for Class 2 NICs.

Make a note in your calendar to contact National Insurance if you haven’t received a letter within a few months asking you to pay your Class 2 NICs.

Contact details for National Insurance Class 2 Self-Employed Contributions

If you’re a limited company director, I’ll cover that next. If you aren’t sure, read my post ‘Am I a sole trader or limited company?

 

Which National Insurance Contributions Do I Need To Pay As A Limited Company Director?

You are legally employed not self-employed. Your company needs to pay Class 1 employer NICs and you as the employee need to pay  Class 1 employee NICs.

If you are thinking this could be a lot, you’d be right. As a one man band limited company, you pay both.

 

 

That’s it! Well done.

I appreciate this is a bit of a brain stretcher. Work out what applies to you, get help if you need it, and then you’re done.

 

What National Insurance Contribution issue did you find difficult when you first started?

Or are you a new business and have no idea where to start?

 

Next week, I’ll cover the question I know you’re asking, How Do I Pay Less National Insurance?

Read my National Insurance series: Class 1 (to be published), Class 2, Class 3 (to be published) and Class 4.

 

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