National Insurance for Contractors – Key Tips

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

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.