Maximum National Insurance when self-employed and employed


Summary of National Insurance

Primary Class 1 National Insurance (commonly known as Employees’ NI) is paid by employees on each of their employments through their weekly or monthly pay. In 2015-16, for most employees, no payment is due on the first £672 of monthly pay, the main rate of 12% is due on the next £2,860 of monthly pay, and any pay over £3,532 is charged at an uncapped rate of 2%. Company directors pay based on an annual earnings period, and people who have opted out of the State pension pay lower rates.

National Insurance cardClass 2 National Insurance is paid by anyone with self-employed earnings over a lower earnings threshold, which is £5,965 in 2015-16. In most cases it is payable at a standard rate of £2.80 per week.

Class 4 National Insurance is also payable by self-employed earners. In 2015-16, no payment is due on the first £8,060 of annual profits, a main rate of 9% is due on the next £34,325 of profit, and any profits over £42,385 are charged at an uncapped rate of 2%. Class 4 profit limits are not reduced for periods of less than a year, and if there is more than one self-employment business, they are all added together to arrive at a single profit figure for Class 4 NI purposes. Class 4 NI is paid together with any tax arising from the annual self-assessment tax return, in January and possibly also July each year.

Historical Class 4 National Insurance data

Tax year Lower limit Main rate Upper limit Higher rate
1996-97 £6,860 6% £23,660 -
1997-98 £7,010 6% £24,180 -
1998-99 £7,310 6% £25,220 -
1999-00 £7,530 6% £26,000 -
2000-01 £4,385 7% £27,820 -
2001-02 £4,535 7% £29,900 -
2002-03 £4,615 7% £30,420 -
2003-04 £4,615 8% £30,940 1%
2004-05 £4,745 8% £31,720 1%
2005-06 £4,895 8% £32,760 1%
2006-07 £5,035 8% £33,540 1%
2007-08 £5,225 8% £34,840 1%
2008-09 £5,435 8% £40,040 1%
2009-10 £5,715 8% £43,875 1%
2010-11 £5,715 8% £43,875 1%
2011-12 £7,225 9% £42,475 2%
2012-13 £7,605 9% £42,475 2%
2013-14 £7,755 9% £41,450 2%
2014-15 £7,956 9% £41,865 2%
2015-16 £8,060 9% £42,385 2%

Class 4 NI payable with income from employment and self-employment

So that a person with earnings from both an employment and self-employment does not pay considerably more NI than a person who has a similar level of earnings but from only one employment, the Class 4 NI payable is sometimes restricted. The objective is to limit the self-employed profits charged at the main 9% rate to the employee-only equivalent, but still leave higher earnings charged at the uncapped 2% rate. The reduced Class 4 liability can only be calculated through a complicated series of steps, which are illustrated by the following examples. The data used is from 2011-12; future years will give similar results.

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Example 1 Example 2 Example 3
Low earner Mid earner High earner
£ £ £
Employment income 15,000 30,000 50,000
Self-employed income 10,000 15,000 20,000
Employees’ NI already paid at main 12% rate 933.00 2,733.00 4,230.00
Class 2 NI already paid (£2.50 * 52) 130.00 130.00 130.00

Step 1
Subtract the Class 4 Lower Profits Limit from the Upper Profits Limit
42,475 - 7,225 = 35,250.00 35,250.00 35,250.00

Step 2
Multiply this by the main rate of Class 4 NI (9%) 3,172.50 3,172.50 3,172.50

Step 3
Add 53 weeks of Class 2 NICs
53 * £2.50 = 132.50 132.50 132.50
3,305.00 3,305.00 3,305.00

Step 4
Deduct Class 1 NI already paid at main rate -933.00 -2,733.00 -4,230.00
Deduct Class 2 NI already paid -130.00 -130.00 -130.00
2,242.00 442.00 -1,055.00

Where the result is negative, there will be no more National Insurance due at the main 9% rate. The high earner will pay Class 4 NI as follows:
Self employed profits 20,000
Less Class 4 Lower Profits Limit -7,225
Profits subject to Class 4 NI 12,775

Payable at uncapped 2% rate

255.50

In other cases, compare the result from step 4 to the total of:
(a) Employees Class 1 NI payable at the main 12% rate 933.00 2,733.00
(b) Class 2 NICs and 130.00 130.00
(c) Class 4 NICs payable at the main 9% rate, assuming no overall limit
(10,000 - 7,225) * 9% 249.75
(15,000 - 7,225) * 9% 699.75
1,312.75 3,562.75

Where this total is less than the result from step 4, step 4 gives the maximum Class 4 payable. This is only an upper limit; the low earner will actually pay Class 4 NI as follows:
Self employed profits 10,000
Less Class 4 Lower Profits Limit -7,225
Profits subject to Class 4 NI 2,775

Payable at main 9% rate

249.75

In all other cases, the maximum Class 4 is calculated by reference to the main rate and the uncapped rate:

Step 5
Multiply the result of step 4 by 100/9 4,911

Step 6
Subtract the Lower Profits Limit from the lesser of the Upper Profits Limit and the profits for the year 7,775

Step 7
Subtract the result of step 5 from the result of step 6. If the result of this is a negative value it is treated as nil 2,864

Step 8
Multiply the result of step 7 by the 2% uncapped rate 57.28

Step 9
Multiply the amount by which the profits for the year exceed the Upper Profits Limit by the 2% uncapped rate 0.00

The maximum Class 4 NI payable is the total of steps 4, 8 and 9

499.28

For comparison purposes, calculate Class 4 NI in the normal way. In this example, the main rate is payable, but self-employed earnings are not high enough to pay the uncapped rate:
Self employed profits 15,000
Less Class 4 Lower Profits Limit -7,225
Profits subject to Class 4 NI 7,775

Payable at main 9% rate

699.75

This is higher than the maximum of £499.28, so the amount payable is capped at £499.28.

Summary table of Class 4 liabilities

Employment income: 10,000 15,000 20,000 25,000 30,000 35,000
Likely Class 1 NI paid: 333 933 1,533 2,133 2,733 3,333
Self-employed profits ▼
0 0 0 0 0 0 0
2,500 0 0 0 0 0 0
5,000 0 0 0 0 0 0
7,500 25 25 25 25 25 6
10,000 250 250 250 250 250 56
12,500 475 475 475 475 449 106
15,000 700 700 700 700 499 156
17,500 925 925 925 925 549 206
20,000 1,150 1,150 1,150 1,066 599 256
22,500 1,375 1,375 1,375 1,116 649 306
25,000 1,600 1,600 1,600 1,166 699 356
27,500 1,825 1,825 1,683 1,216 749 406
30,000 2,050 2,050 1,733 1,266 799 456
32,500 2,275 2,249 1,783 1,316 849 506
35,000 2,500 2,299 1,833 1,366 899 556
37,500 2,725 2,349 1,883 1,416 949 606
40,000 2,866 2,399 1,933 1,466 999 656
42,500 2,916 2,449 1,983 1,516 1,049 706
45,000 2,966 2,499 2,033 1,566 1,099 756
47,500 3,016 2,549 2,083 1,616 1,149 806
50,000 3,066 2,599 2,133 1,666 1,199 856

Reclaiming overpaid National Insurance

If too much Class 4 NI was paid in a particular tax year, the overpayment can be reclaimed using HMRC form CA5610. For the 2014-15 tax year, the earliest date that the form can be submitted is 1 February 2016.

If you know in advance that you will are likely to be paying too much Class 2 or Class 4 NI during the 2015-16 year, you can apply for deferment in-year using form CA72B.




32 Comments (oldest first)

  1. mary bancroft

    I earn £588 per month - i understand I am covered by NI although I don’t earn enough to pay. Does this mean i am covered for any long-term benefits in the future? My Pension is already safe.

    29 December 2012

  2. Admin

    The Lower Earning Limit for 2012/13 is £464 per month, so: Yes, you are accruing credits.

    29 December 2012

  3. r j quested

    I have just sent in my daughter’s self assessment.
    Self employment profits 11,560
    partnership profits 8,746
    total 20,306
    PA 7,475
    tax due on 12,831
    She has been charged I/T 12,831 @20% 2,566.20
    Class 4 N.I. 13,081 @9% 1,177.29

    Should she be paying 9% on £250 extra income?

    4 February 2013

  4. Admin

    Yes. As above, the NI allowance was £7,225, whereas the tax allowance was £7,475.

    4 February 2013

  5. Confused of West London

    Please accept my apologies if this has been explained already but I am slow on these things.

    I am in paid employment where I earn around £25k per annum.

    In addition to this I am about to take up self-employment where I expect to earn around £4k per annum.

    Will I be exempt from NI contributions on my self-employed income on account of low income from self-employment, or will I be paying 9% due to my combined income?

    Needless to say I already pay full rate NI on my employed income.

    Thanks.

    21 April 2013

  6. Admin

    “Will I be exempt from NI contributions on my self-employed income on account of low income from self-employment…”
    Yes.

    “…or will I be paying 9% due to my combined income?”
    No.

    21 April 2013

  7. Hopefully not overpaid

    I am currently (and have been for the last five years) employed part time and self employed. My income split is roughly 25% employed and 75% self employed and I submit my Tax Returns through the HMRC online service.

    Would any NI adjustment be made by HMRC when I submit my tax returns, or do HMRC rely on me to make the calculation and notify them I’m possibly paying too much?

    Will HMRC go back over the past 5 years to look at my record and establish if, and by how much, I may have overpaid?

    If I have overpaid, can I transfer this to my spouse who has underpaid?

    Thank you for your help on this as I, along with everyone else in the country, really don’t want to have overpaid NI if there’s no extra benefit to be had.

    24 October 2013

  8. Admin

    I have never known HMRC to volunteer a repayment of overpaid NI. If you think you might have overpaid, you should send in the CA5610 form (linked to above), which can cover more than one year, and they will look into it.

    Transferring an overpayment to another person’s account is not routinely done, so sorting it out is likely to be more trouble than it is worth. Just claim the repayment, and, if your spouse has a liability to them, send them enough money to cover that liability, using her NI number as the payment reference.

    24 October 2013

  9. PerhapsToolate

    I was employed full-time until July 2012, and went into full-time Self-employment starting Aug 2012. My total NI due (Class 1 + 2 + 4) comes out to be more than £3500 as per the tax return software. Part of this has been paid under PAYE but the rest needs to be paid as part of the tax return.

    My tax return has yet not submitted but 31st Jan is not too far. Do I still have time to submit CA72B?

    Thanks

    28 December 2013

  10. Admin

    From the HMRC notes:

    “You should send us your 2012–13 application form as soon as
    possible before 6 April 2012, but we will accept it up to
    5 April 2013.
    If we receive your application after 5 April 2013 we will only
    consider allowing you deferment of Class 4 NICs, and only if
    your Class 4 liability is:
    • not fully paid, or
    • under enquiry.”

    So it looks like you can still apply, but you will probably not hear back from them until after the payment due date, in which case you will need to estimate the amount still to pay on 31 January.

    28 December 2013

  11. KC

    Please accept my apologies also if this has been explained already but I am also slow on these things.

    I am in paid employment with the Civil Service earning around £28k per annum and pay my Class 1 NICs PAYE etc.

    In addition to this I have been doing occasional (TV extra work) so decided I had to register to do self assessment as its self-employment. I have only done 3 days so far earning approx £200 total. I don’t expect to earn anything more than £1-2k per annum if even!

    I have been asked to pay Class 2 contributions but I think I can complete an ‘Application for exemption from Liability for Class 2 NICs’ form as it is less than £5886 threshold.

    Is this correct? or do they take into account your combined earnings?

    Thanks.

    KC

    11 November 2014

  12. Admin

    You are correct. Class 2 contributions are only payable on self-employed earnings, so any other income can be disregarded when you claim the exemption based on low earnings.

    11 November 2014

  13. James

    I have just been investigated and the tax have gone back 6 years and sent me a bill for 5500 for class 4 nic plus 1900 penalty does class 4 have to be paid or is it voluntary as I now numerous people self employed who never pay like my self

    2 January 2015

  14. Admin

    Class 4 National Insurance is not voluntary.

    These other people that you know are likely to end up in the same situation as you.

    2 January 2015

  15. Chris

    Cant seem to comment on the page my question is most relevant to, but you guys and gals are really good at replying and providing a great service, so hopefully you can still help me!

    I’m wondering if I should apply for Low Earnings, I am employed earning a fair amount in London, pay my NI, all is fine. But I also am self employed which made a profit of £400 2013-14, and the £140 NI from that I feel is a bit much. Can certainly afford it but I feel I’m better placed not having to pay NI on the self employ until it makes a more reasonable amount to justify the contributions. So in an ideal world, I pay NI on employed and not on self-employed. Is that how it would work out? I tried ringing HMRC for an answer but was on hold for 47 minutes, I seriously lost the will to live!

    Thanks in advance,

    Chris

    16 January 2015

  16. Admin

    Payment of Class 2 NI counts towards Incapacity Benefit, the basic and New State Pension, Contribution-based Employment and Support Allowance, bereavement benefits and Maternity Allowance. If you are happy that your employment NI is covering those, there is no point paying Class 2.

    16 January 2015

  17. tom

    Hello,

    So a good conundrum to share. A friends UK resident wife did a one off piece of Consultancy work in the UK for a foreign government and earnt £7500 in the 2013-14 tax year. Apart from this there was no other income or employments. As the tax threshold is circa 10k I said there is no tax to pay but she had to fill out a self assessment form to declare the income. So far so good.

    However, upon doing a self assessment form to declare this income my mate says there are lots of questions about accounts, expenses, when the business started etc. As this was a one off piece of work is she ok answering those questions as best guess as there is no business to speak of, just the one off project. (In fact her completed tax return although not submitted says there is nothing to pay) Yes there were some expenses like travel and sustinence etc but these didnt add up to more than a few hundred pounds and she never set up a company or registered or anything like that.

    Is she good to go to hit submit?

    Also, I see the NI discussions in above threads and wonder whether she has to pay any NI on the £7500?

    many thanks in anticipation of your response!

    26 January 2015

  18. Admin

    It sounds like this person has had some casual income, rather than started a business. You might find the start of this article helpful:

    http://www.brighton-accountants.com/blog/tax-self-employment-still-employed/

    There is no national insurance on casual income.

    27 January 2015

  19. Peter

    Hi

    I’ve just filled and paid my self assessment but am rather confused by one thing. In the SA Tax return that I downloaded after completing the process it has Tax due and Class 4 NICs due as two separate figures. Yet the amount I’ve been asked to pay only relates to the Tax due (as well as the amount for payment on account). So it appears the payment hasn’t been requested for the Class 4 NICs due.

    Is it me or is there something wrong there?

    Many thanks

    Peter

    28 January 2015

  20. Admin

    I probably need to see what you are looking at. “Tax” is sometimes used as an abbreviation for the tax plus Class 4 NICs, or you might be exempt from the Class 4 NICs for some reason.

    28 January 2015

  21. Peter

    I am in a professional partnership with one other person who, like me is over 65. We no longer pay Class 2 NIC but are we obliged to continue to pay Class 4 now we have reached this age?

    Many thanks for your responses

    28 January 2015

  22. Admin

    You do not have to pay Class 4 contributions if you are over state pension age at the beginning of the tax year.

    28 January 2015

  23. Alex Bolton

    I work Full time as a graphic designer.

    I am Planning to try and do some freelance in my spare time.

    If I was to earn around £4,000 in a year who and how do I contact to work out my tax.

    And will it affect my Daytime jobs Tax?

    3 February 2015

  24. Admin

    http://www.brighton-accountants.com/blog/tax-self-employment-still-employed/

    3 February 2015

  25. Joseyc

    Gosh you guys are good - thank you. Same apologies if I am being slow… I earn £95k as an office holder - not an employee, no pension or holidays but I am paid net of Tax and NI at my tax code - I work 4 days a week from home and one day in the office - so I do have a home office for which I have never charged any expenses…

    I am about to start earning £16,200 self employed per annum - regular work, 3 days per month - so I guess I am trading… I put aside 40% of earnings for tax (as the tax free allowance is already taken in my tax code) to pay when I do online return. Do I save 2% for NI? - or more (please say no!).

    And guess this means I should start treating my home office seriously - saving receipts etc?

    If I use an accountant will I spend more in fees than I am making with my extra job?!

    Any advice
    Big thanks
    Josey C

    23 March 2015

  26. Admin

    “Do I save 2% for NI? - or more (please say no!).”

    You get the benefit of the first £7,956 not being subject to Class 4, so the actual NI payable will be about £180.

    “And guess this means I should start treating my home office seriously - saving receipts etc?”

    Yes, for your employment income as well as your self-employment.

    “If I use an accountant will I spend more in fees than I am making with my extra job?!”

    An accountant will probably charge you between £200 and £400 per year.

    24 March 2015

  27. Shelley

    My husband is self employed, but his profit was under the threshold for paying class 2 NI. I understand that if you are employed and earn between £112 and £155 per week your class 1 national insurance contributions are marked as paid although not actually paid thus protecting your benefits. Is this still the same if you are self employed? Many thanks.

    8 April 2015

  28. Admin

    No, it doesn’t work like that.

    9 April 2015

  29. Richard

    Hi, I’m a sub contractor for a tarmac firm, half the lads are cards in but the other half are like myself.

    Ive been here since Oct 2013, previously I’ve worked for 19 years cards in.

    I’m doing my assessment online but I’m confused as to why i pay class 4 NI.

    All my other sub contractor work mates pay class 2 at £2.80 a week. my bill is £2100 a year.

    Where did i go wrong or are they walking a financial penalty tightrope?

    20 April 2015

  30. Admin

    I assume by “cards in” you mean employed?

    Class 2 is paid by all subcontractors earning over £5,965 in a year.
    Class 4 is paid by all subcontractors earning over £8,060 in a year.

    Most subcontractors pay both.

    You have not really given me enough information to comment, but your figure of £2100 looks reasonable for a subcontractor on average income.

    If your work mates are doing their own assessments, I suspect they are paying class 4 through their overall tax liability, but don’t realise it.

    21 April 2015

  31. Salman

    If the self employed income is £15k and employed part time income £5100, do I need to pay NIC Class 4 + Class 2 = £3770? Because online it’s showing around this much amount for 2014-2015 tax year. Expenses were £1689 even though the amount to pay is so high, am I doing something wrong?

    My wife is a self employed too and she earned £5500 in the whole year, she is in loss £1770 in her self employed business, does she get tax returns in this situation or it is just good that she has nothing to pay, except NIC Class 2 only?

    Thanks for your support :)

    11 May 2015

  32. Admin

    “If the self employed income is £15k and employed part time income £5100, do I need to pay NIC Class 4 + Class 2 = £3770?”

    You need to pay NIC Class 4 + Class 2, but the total you have arrived at seems excessive. I would expect it to be around £700.

    “Because online it’s showing around this much amount for 2014-2015 tax year.”

    I suspect that figure includes tax.

    Your wife is supposed to register her business with HMRC, even with nothing to pay.

    12 May 2015