Salary sense: National Insurance for the self-employed

It is important to take care of your National Insurance for two reasons:

• You may end up contributing too much
• You may lose out on state benefits where these are related to the amount of National Insurance contributions you have made

What National Insurance contributions do I have to pay?
Most self-employed people pay two classes of National Insurance: Class 2, which is paid at a weekly flat rate and submitted quarterly in arrears; and Class 4, where the amount you pay depends on your profits.

When do I pay National Insurance?
You should start paying Class 2 National Insurance contributions as soon as you become self-employed. You need to register with the National Insurance Contributions Agency within three months of becoming self-employed, (or face an automatic fine of £100). It will then automatically send you your bills on a quarterly basis.

You do not have to pay Class 4 National Insurance contributions until you have completed your first tax return as a self-employed individual. After your first year in business, you start paying most of your income tax and some of your Class 4 National Insurance contributions in advance.

The amount you pay will be based on your previous year's profits. Payments are due on 31 January and 31 July. If your profits are down, you can ask to reduce these payments. Make sure you set money aside regularly so you can pay these amounts when they become due.

What happens if I don't pay National Insurance contributions?
You could lose out on your future entitlement to benefits, including a State Pension, if you fail to keep your contributions up to date. By law you must pay your contributions, and the debt could be enforced through the courts if you fail to pay what is due.

See the Inland Revenue website for more information about National Insurance contributions.

Like this story? Spread the news by clicking below:

 del.icio.us     Digg this     reddit!