Tax and NI

13. National Insurance

13.1 The self-employed pay much less National Insurance than company employees, in return for substantially fewer benefits.

13.2 Employees pay Class 1 contributions.

This is deducted from pay at source, with the employee's income tax.

• Employees earning less than £139 a week are exempted.
• Contracted-in employees pay 12 per cent on weekly earnings between £139 and £817, plus an additional 1 per cent on weekly earnings over £817.

13.3 Employers pay an 'employer's contribution' on pay and the taxable value of any car and fuel benefit.

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

• 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.
• The employer's contribution is an allowable expense (see 6.2).
• Since September 2010, start-up employers outside London and the south-east have not had to pay £5,000 in NICs for the first 10 members of staff hired in the first year of business. All new businesses set up since 22 June 2010 will benefit.

13.4 A self-employed person currently pays:

• Class 2 contributions of £2.50 a week (£130 a year). The National Insurance Contributions Office collects this. Direct debit is the simplest and most trouble-free method of payment.
• Class 4 contributions of 9 per cent on profits between £7,225 and £42,475, plus an additional 1 per cent on annual profits above £42,475. HM Revenue & Customs collects this at the same time as income tax.