Everyone between the age of 16 and state pension age (66 for men and women by 2020) who are working needs to pay National Insurance contributions (NICs) to HMRC. If you're self-employed, you'll need to sort out your own NICs. The good news is, as a self-employed person, you pay much less National Insurance than if you were an employee.
Note that if you've set up a limited company, the following doesn't apply to you, as you make your NICs via the PAYE system you set up.
There are two types of NICs for self-employed people - Class 2 and Class 4.
Class 2 NICs:
In some special cases, if you are a self-employed married woman or widow, you may be entitled to the reduced rate Class 1 NICs.
What if I'm self-employed but I have a PAYE-paying job as well?
The same NIC rules apply as above for your self-employed work, while you also pay NICs as normal through the PAYE system. In other words, you pay Class 1 contributions as well. However, you can apply to defer payment of your Class 2 and Class 4 contributions - talk to HMRC for more info.
I'm worried about being able to afford my NICs. What can I do?
HMRC has introduced the Business Payment Support Service (BPSS) to help businesses in your situation, which can help you make arrangements. Call 0845 302 1435 to get more advice.
Smarta Tax Services - the perfect solution for start-ups or Sole Traders in need of tax and accounting support. Get a personal experience with a dedicated Accountant that will ensure you keep track of day to day operations of your business, and you've completed all areas required to comply with HMRC and Companies House. Our trusted accountancy software allows transparency and you'll have 24/7 access online, so you can keep track of your business performance.