NATIONAL INSURANCE
There are four different types:
Class 1 National Insurance contributions (NICs) are payable by anyone who is employed. They are a percentage of your earnings above a certain threshold. Employers deduct Class 1 NICs automatically, along with PAYE income tax. Special note: employers also pay Class 1 NICs – and sometimes Class 1A and Class 1B – on their employees’ wages.
Class 2 NICs are payable by anyone who is self-employed. Class 2 National Insurance is a fixed weekly amount, paid by monthly direct debit or quarterly bill. When you registered as self-employed, you probably filled in the Class 2 direct debit form. Special note:there are occasions when you don’t need to pay Class 2 NICs – see the section on low earnings over the page.
Class 3 NICs are voluntary. They cover shortfalls in your National Insurance contribution record and help protect your entitlement to State Pension and bereavement benefits.
Class 4 NICS are payable by most self-employed people. They are a percentage of your annual taxable profit from self-employment, but you only start paying Class 4 when your profits reach a certain limit. You pay your contributions along with your income tax using the Self Assessment tax return. Special note: if you are in a partnership, or if your spouse is self-employed too, then each person pays their own Class 4 NICs.
So which class applies to me?
If you are employed, then it’s Class 1. If you are self employed, then it’s Class 2 and/or Class 4. And if you are employed and self-employed at the same time, you may have to pay Class 1, 2 and 4. If you are an employer, then you will also have to pay Class 1 – and possibly Class 1A or Class 1B – on employees’ wages.