Tax and NI

10. National Insurance

10.1 The self-employed pay much less NI than company employees. But they get substantially fewer benefits.

10.2 Employees pay Class 1 contributions. This is deducted from pay at source, along with the employee's income tax.

• Employees earning less than £139 a week are exempt.
• Contracted-in employees pay 12 per cent on weekly earnings of between £139 and £817 plus an additional one per cent on weekly earnings over £817. From 2011/12 this will rise by 1 per cent to 12 per cent. Contracted-out employees pay 9.4 per cent.

10.3 Employers pay the 'employer's contribution' on pay and benefits.

This is charged at 13.8 per cent for contracted-in employees on earnings over £136 a week. There are lower rates for contracted-out employees.

• Employers pay nothing for employees earning less than £136 a week.
• The level at which employers start to pay Class 1 contributions will increase by £21 per week above indexation from April 2011.
• From September 2010, start-up employers outside London and the south-east have not had to pay £5,000 in NICs for the first ten members of staff hired in the first year of business. All new businesses set up from 22 June 2010 will benefit.

10.4 The self-employed currently pay:

• Class 2 contributions of £2.50 a week (£130 a year). The National Insurance Contributions Office collects this. Someone earning less than £5,315 a year can apply to be exempted from Class 2 contributions. Ask for form CF10.
• Class 4 contributions of nine per cent on profits of between £7,225 and £42,475 plus an additional two per cent on annual profits over £42,475. HMRC collects this at the same time as income tax.