Paying National Insurance(NI) is required by both employed and self-employed people above 16 years of age. The amount payable is the same for women and men. By contributing to your NI, you can receive a State pension and Jobseekers Allowance after a set time-period. As a contractor, you will either be self-employed or run a limited company. Both options and the NI owed in each case shall be explored.
Self-employed National Insurance
As a contractor, you may be self-employed and you will have to ensure that you pay your NI through your self-assessment. You will have to pay NI if you make a profit of £6,025 or more a year. This includes Class 2 NI at £2.85 a week and Class 4 NI at 9% of profits, when these profits are £8,164 – £45,000 or 2% on profits over £45,000 for the tax year 2017 to 2018.
Limited Company National Insurance
If you run a Limited Company then the NI you owe is the same as that of an employee as directors of a Limited company fall into the employee category. As a director, you will have to pay National Insurance if your income is more than £8,164. Note that only income from a salary or bonus constitutes an income. However, dividends up to £5,000 do not constitute an income and are not included for NI purposes.
Contractor pensions are secured if NI is paid. However, there are cases when a state pension can be applied for if you received free NI credits. When free NI credits are recorded, these will also count towards your state pension. If you are paid £113 – £157 per week than you will be given a free NI credit.
Making Voluntary NI Contributions
Self-employed who are not obliged to pay National Insurance, fall into the following groups: examiners/invigilators; property business owners; religious ministers who are not paid and investors do not get a fee or commission or run such a business. It is recommended that a Voluntary contribution is made by these self-employed groups to ensure State pensions are built up.
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.