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Do Self-employed taxpayers pay national insurance tax in the UK?

Self-employed taxpayers are usually taxed differently from their counterparts that are employed in the UK.

One of the main differences is they are in charge of declaring and paying taxes on the taxable income unlike the employed that is declared in real time to the HMRC by their employers.

In this blog post, I will like to explain why the answer to this question could either be a YES or NO.

Why do self-employed pay national insurance in the UK?

One of the taxes that individuals pay in the UK is national insurance.

In fact, it is the second-largest source of income for the United Kingdom.

It is paid by individuals between the age of 16 and state pension age and who are earning income over a certain threshold

Contributing to your national insurance will enable a taxpayer to enjoy and have access to certain state benefits.

The contributions also enable the government in the UK to provide the following are:

  • To provide funds for the state pension; contributions that are made are geared towards the state pension payments of individuals
  • To provide funds for a benefit paid to individuals in the UK. Such benefits include Job Seekers’ Allowance, Maternity Allowance, Bereavement Allowance, Statutory Sick Pay, etc.
  • To support the national health system

Also, the contributions made to the national insurance will determine if an individual receives a state pension when they reach the state pension age.

Please note that to be able to enjoy this pension they have had a qualifying year’s contribution which at the time of writing this blog is 10 years.

How do self-employed pay national insurance in the UK?

Self-employed taxpayers in the UK are access on their yearly income unlike employed that could be accessed weekly or monthly.

The self-employed are expected to prepare their accounts and report to HMRC by the deadline of 31st January following the tax year.

The taxable income for sole traders is the net profit for the tax year.

Please note that the taxable profit is computed by deducting expenses from the turnover from sales in the tax year.

When this account is submitted the HMRC would then access how much national insurance is due to be paid to the self-employed Individual.

The self-employed pay two different types of national insurance, Class 2 and Class 4.

Two thresholds are used in determining the national insurance paid by the taxpayer every year. Lower profit threshold and small profit threshold.


The lower profit threshold

This threshold in the tax year 2022/23 is £11908.every self-employed that has a taxable profit that goes over this threshold is expected to pay aClass2 national insurance and Class 4 national insurance.

The Class 2 national insurance due is calculated at £3.15 for every week the individual trades in the tax year.

Class 2 national insurance is due for payment when the sole trader pays their other taxes.

If they have not traded for the whole year they only pay for the weeks that they have traded but they need to inform the HMRC in such cases.

So a taxpayer that has traded all tax year and has a profit that goes over £11,908 will pay £164 for their class 2 national insurance contribution.

The second type of national insurance paid by sole traders that have a taxable profit over the lower threshold is Class 4 national insurance.

The rate that is applied to individuals that have taxable profits between £11,909 and £50,270 is 9.73%

Example of application of Class 2 and 4 national insurance.

Jack has a net profit of £12,000.

The Class 2 national insurance due is £164

The Class 4 national insurance due is £12,000-£11,908


The total national insurance due is £172.95

When the sole trader’s profit goes over £50, 270, their Class 4 national insurance reduces to 2.73%


The small profit threshold for self-employed

The second threshold used in determining national insurance paid by self-employed taxpayers in the UK is the small profit threshold.

For the tax year 2022/23, every self-employed with a taxable profit below £6725 is not required to pay any of the two classes of national insurance.

Not applying for national insurance would definitely affect access to state benefit and could let the individual miss out on a qualifying tax year.

So the revenue allows such induvial to apply on a voluntary basis to prevent such happening due to having a lower profit in the tax year.


 Another set of self-employed taxpayers

These self-employed have taxable profits falling between £6725 and £11,908.

This is the small profit and lower profit threshold for individuals in the UK

These taxpayers are not required to pay national insurance.

They would however still have access to the benefit enjoyed by the induvial that pays class 2 national insurance.



Conclusions on national insurance paid by self-employed in the UK.

I hope you have enjoyed reading this blog post, from reading this, you can deduce that the answer is both yes and no!

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