There are 4 classes of National Insurance Contributions. The self employed can pay class 2 and class 4 contributions.
Class 2 Contributions
Class 2 contributions are payable at a flat weekly rate. You pay them either monthly with a direct debit, or quarterly after receiving a bill.
These class 2 contributions go towards paying for your State Pension and other contributory benefits.
If your profits are small you can claim the small earnings exemption and avoid paying these class 2 contributions. This exemption is claimed on form CF10 available from the Newly Self Employed helpline (0845 915 4515).
Class 4 Contributions
Class 4 contributions are profit related. You pay 9% (from April 2011, was 8%) on the excess of your profits over a limit. Your profits are worked out the same as for income tax. These contributions are worked out from your Self Assessment Return and are paid with your income tax.
Class 4 contributions do not add to your pension, nor help with contributory benefits.
For more information contact Will Johnson on 07967 522374.
