30 October 2024
Table of contents
Table of contents
Nobody enjoys seeing deductions come out of their hard-earned cash, but paying National Insurance is one of the necessary evils of self-employment. The amount that you pay towards NI depends on how much you earn, and even how you earn it, such as through an employer or as someone who works for themselves.
Making National Insurance Contributions, or NICs, counts towards your eligibility for some types of state benefits, and towards your state pension. If you don’t make the full amount of contribution each year, you might not be able to receive the full amount of state pension when you reach retirement age.
There are different types of National Insurance (NI), known as classes. These classes tell us who is making the contribution, what rate they must pay, and on what type of income. The type of National Insurance you pay on your self-employed profits is different to the NI contributions you make through an employer.
There are currently two types of National Insurance for self-employed people, although this will change from April 2024 onwards.
National Insurance is a bit different for self-employed people because rather than paying it on your income, you pay it on your profits. As a self-employed sole trader, your profits are what’s left after you deduct business expenses from the money you make on sales. It’s an important point, because otherwise you’d end up paying tax and NI on money you didn’t actually get to keep!
You’ll only pay National Insurance once your self-employed profits reach the NI threshold. If they’re above the Small Profits Threshold (but below the Lower Profits Threshold) then you won’t need to pay National Insurance, but you will accrue credits. This is a good thing, because these go towards your entitlement to the State Pension and some types of benefit.
Threshold Description
No NI to pay, but you can make voluntary contributions
Small Profits Threshold (SPT) You won't pay NI on earnings above this and up to the LPL, but you will build up National Insurance credits
Lower Profits Limit (LPL) Start paying Class 4 NI on your profits at and above this thresholds at a rate of 6%
Upper Profits Limit (LPL) Start paying Class 4 NI on profits at and above this threshold at a rate of 2%
2024/25 Threshold
£0 - £6,724
£6,725
£12,570
£50,270
2025/26 Threshold
£0 – £6,844
£6,845
£12,570
£50,270
Unlike tax, which is based on your total profits for the year, National Insurance is paid depending on how you earn the money.
In short, how much you earn from your employer might affect which rate of income tax you pay on your self-employed earnings, but it won’t impact your National Insurance. Employed NI and self-employed NI are separate!
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