3rd September 2019Elizabeth Hughes1 Comment.6 minutesTax
If you’re employed, then you’ve probably seen a deduction on your payslip labelled with the letters NI. It stands for National Insurance, and it’s calculated based on how much you earn, and how you earn it.
Though we used it as an example, NI isn’t just for employed people. Learning more about NI is also useful for self-employed people, to avoid any nasty tax bill surprises after submitting a return!
We’re here to help with all of your accounting and bookkeeping needs, so take a look at our quick start guide to NI.
What is National Insurance (NI)?
National Insurance Contributions (NICs) have to be paid by both employed and self-employed people towards their state pension and other benefits. If you’re employed, then your employer also has to make their own contribution to your NI (which comes out of their pocket, not yours – hurrah!).
What happens if I have gaps in my NI record?
The National Insurance contributions you make go towards your State Pension plus any other benefits. If you have gaps in your NI record, it can affect how much State Pension you get. Don’t worry, you can check your record here, and you can even make voluntary contributions to fill in any gaps.
How do I pay National Insurance (NI)?
The way that you pay NI depends on your employment status (whether you’re employed or self-employed).
Paying NI when you’re employed
If you are employed, it’s your employer’s responsibility to calculate how much NI to deduct each time they pay you. They pay this to HMRC on your behalf, and will show the amount deducted on your payslip.
Paying NI when you’re self-employed
Self-employed workers submit a Self Assessment tax return directly to HMRC, who use it to calculate how much income tax and NI is due. It’s then up to you to make sure this gets paid to HMRC by the deadline (but HMRC do give you options of how to pay).
Paying NI when you’re employed and self-employed
Some people work for an employer and run a business in their spare time. Any NI due on income you earn by working for someone else will be collected by them, and paid on your behalf.
It’s up to you to complete a Self Assessment tax return to tell HMRC about money earned working for yourself. They will use that information to calculate how much tax and NI you must pay, and will give you options on how to pay it before the deadline.
What are the different National Insurance (NI) classes?
The different types of NI, known as classes, are used to categorise the type of work you do, and how much you earn doing it.
Class 1 National Insurance
Class 1 NI is for employed workers aged 16 or over, under State Pension age, who are earning more than £166 a week. The NICs are deducted by the employer, which they then pay to HMRC.
Class 1A or 1B National Insurance
These are paid by employers on their employee’s expenses or benefits
Class 2 National Insurance
Class 2 NICs are for self-employed people. They are compulsory if your self-employed income is £6,365 or higher. Below that amount you can choose to pay voluntary contributions, which you might wish to do to avoid any gaps in your NI record.
Class 3 National Insurance
Class 3 NI is for making voluntary contributions, for example if you have gaps in your record that you’d like to fill.
Class 4 National Insurance
Class 4 NI is compulsory for self-employed people whose self-employed profits earn them more than £8,632 a year.
If you’d like more help with understanding your National Insurance status, Citizens Advice offer free, impartial advice.
If you are self-employed, and would like to chat with us about how we can help with your tax return and other requirements, contact us today, using the details at the bottom of the screen!
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