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 £105 a week are exempted.
• Contracted-in employees pay 11 per cent on weekly earnings between £105 and £770, plus an additional one per cent on weekly earnings over £770. Contracted-out employees pay 9.4 per cent.

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

This is charged at 12.8 per cent for contracted-in employees on earnings over £105 a week.

• Employers pay nothing for employees earning less than £105 a week.
• The employer's contribution is an allowable expense (see 6.2).

13.4 A self-employed person currently pays:

• Class 2 contributions of £2.30 a week (£119.60 a year). The National Insurance Contributions Office collects this. Direct debit is the simplest and most trouble-free method of payment. Someone earning less than £4,825 a year (excluding any start-up grants) can apply to be exempted from Class 2 contributions. Ask for Form CF10.
• Class 4 contributions of eight per cent on profits between £5,435 and £40,040, plus an additional one per cent on annual profits above £40,040. HM Revenue & Customs collects this, at the same time as income tax.