Tax and NI

10. National Insurance

10.1 The self-employed pay much less National Insurance 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 £105 a week are exempt.
• Contracted-in employees pay 11 per cent on weekly earnings of between £105 and £770 plus an additional one per cent on weekly earnings over £770. Contracted-out employees pay 9.4 per cent.

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

This is charged at 12.8 per cent for contracted-in employees on earnings over £100 a week. There are lower rates for contracted-out employees.

• Employers pay nothing for employees earning less than £100 a week.

10.4 The self-employed currently pay:

• Class 2 contributions of £2.30 a week (£119.60 a year). The National Insurance Contributions Office collects this. Someone earning less than £4,825 a year can apply to be exempted from Class 2 contributions. Ask for Form CF10.
• Class 4 contributions of eight per cent on profits of between £6,035 and £40,040 plus an additional one per cent on annual profits over £40,040. HM Revenue & Customs collects this at the same time as income tax.