National Insurance contributions also popularly known as NIC is calculated on the basis of your employment status and your earnings. There is a vast difference in the way National Insurance contributions for employed and the self employed is calculated.
Regardless whether you are employed or self employed, paying National Insurance (NI) is mandatory. Only in certain cases, you are exempted from paying National Insurance (NI).
We'll discuss how National Insurance (NI) is calculated in detail below. First, let's begin with National Insurance contributions for the Self Employed.
The Autumn Budget 2024, announced on 30th October 2024, brings significant changes to National Insurance contributions for employers. The following updates will take effect from April 2025:
These changes are part of the government's ongoing efforts to adjust the tax and national insurance system to better support the economy and businesses in the coming years.
National Insurance (NI) contributions are categorized into different classes, each with specific rules based on employment status. Here's a breakdown of the various classes:
Class 1 contributions are paid by both employers and employees. These are the standard contributions deducted from wages, including salary, overtime, and bonuses.
Class 1A contributions are paid solely by employers on the value of benefits or expenses provided to employees, such as company cars or private medical insurance.
Class 2 contributions are voluntary contributions paid by the self-employed to help fill any gaps in their National Insurance record. This ensures they are entitled to the same benefits as employed individuals.
Class 3 is also a voluntary contribution, but it’s paid by individuals who have a gap in their National Insurance record, such as those who were out of work or living abroad for a period of time.
Class 4 contributions are made by the self-employed based on their profits. These contributions are calculated on a percentage of their annual earnings above a certain threshold.
There are two types of NI contributions for the self-employed: Class 2 and Class 4. The class applicable to you depends on your profits:
Profit After Allowable Expenses | National Insurance Rate |
---|---|
Up to £12,570 | 0% (Voluntary: £3.45/week) |
£12,570 - £50,270 | £3.45/week + 10.25% |
Over £50,270 | £3.45/week + 3.25% |
Profits: £30,000
Profits: £60,000
For employees, Class 1 NI contributions are deducted by employers based on gross earnings (before tax or pensions).
Annual Income | National Insurance Rate |
---|---|
Up to £12,570 | Exempt |
£12,570 - £50,270 | 8% |
Over £50,270 | 2% |
Income: £40,000
Income: £60,000
For individuals missing NI contributions, voluntary contributions (Class 3) can be made at £17.55 per week for the 2024-25 tax year.
If you need any more information or if you have any queries regarding National Insurance contributions, please get in touch with us. Simply fill in the Request a Call Back form on this page or write to us at [email protected] and we will be more than happy to help.