Understanding National Insurance if you're self-employed
There are two main taxes we all pay on our income - income tax and national insurance (see the related article for an overview).
Both are taken into account automatically if you are on a salary, and your employer will pay your taxes to HMRC out of what you earn.
If you're self-employed, more responsibility falls on you. You're responsible for both your income tax (calculated as a percentage of what you earn above a personal allowance) and national insurance. The good news is that untied makes it easy, but sometimes there are questions for you to answer, especially around national insurance.
National insurance can also affect what you get in your pension (see the linked article).
This article sets out what you need to know.
Most self-employed people pay two types of National Insurance Contributions (NICs):
- A percentage of your profits (this applies once your profits exceed the threshold which is again the personal allowance of £12,570, and works out at 6% for profits up to £50,270 and 2% on higher profits) - known as Class 4 contributions
- There used to be a fixed amount per week known as Class 2 contributions, but for most self-employed people these no longer need to be paid
untied shows any national insurance you need to pay in your final tax calculation within our app
Percent-based annual contributions - Class 4
These are straightforward and are effectively another tax on earnings (there is an equivalent for those who are employed). You stop paying the annual contribution (Class 4) at the end of the tax year in which you reach state pension age.
If you want more information about National Insurance you can contact HMRC via the inquiries page: National Insurance enquiries
Fixed weekly contributions - Class 2
Most people don't need to pay Class 2 contributions from tax year 2024/25. The exception will be if your profits are under £6,475 in which case you can make voluntary contributions to keep entitlement to certain state benefits such as your pension.