There are two types of National Insurance Contributions (NICs) payable by most self-employed people. These are known as Class 2 NICs and Class 4 NICs. Class 2 NICs are paid by all self-employed taxpayers unless they qualify for the small earnings exception or other exemptions which remove the necessity to pay NICs. Class 2 NICs are payable at a flat weekly rate.
In addition, most self-employed people are also required to pay Class 4 NICs. Class 4 NICs are payable (as well as Class 2 NICs) if profits are £8,424 or more a year. Class 4 NIC rates for the tax year 2018-19 are 9% for chargeable profits between £8,424 and £46,350 plus 2% on any profits over £46,350.
A number of categories of people are exempt from paying Class 4 NICs, these include:
- People under the age of 16 at the beginning of the year of assessment.
- People over State pension age at the beginning of the year of assessment. A person who attains State pension age during the course of the year of assessment remains liable for Class 4 NICs for the whole of that year.
- Trustees, guardians etc, of an incapacitated person are exempted from Class 4 NICs on that income.
The Class 4 NIC rate is substantially lower than the corresponding rate for employees who pay National Insurance at 12% on the same income levels. Both the employed and self-employed pay 2% National Insurance contributions on income above the higher rate threshold.