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Class 2 and Class 4 National Insurance

Posted 20/06/2019

When a UK resident approaches their 16th birthday the Government will notify the individual of their National Insurance number. This number stays with that person while they live and work in the UK. People who do not receive one, or come to live in the UK from abroad, will need to apply for a National Insurance (NI) number.

An NI number is necessary for an individual to work in the UK to ensure that taxes are correctly deducted from your wages and paid to the Government. Part of those deductions will be paid for Class 1 National Insurance, and this will go towards your entitlement to a state pension and benefits if you come to a point that you can claim these.

If you are self-employed then you will have to pay Class 2 and Class 4 National Insurance which is calculated when you send your self-assessment tax return to HMRC. Class 2 and Class 4 national insurance are calculated in different ways. The figures below apply to the 2018/19 and 2019/20 Tax Years.Class 2 has a set amount to be paid each year if your profits exceed an amount set by HMRC.
£6,205 was the set amount between 6th April 2018-5th April 2019, and self-employed individuals with profits over this amount are set to pay £153.40 (broken down, this is £2.95 per week for the year) by the 31st January 2020 on top of their self-assessment tax.
For profit made between 6th April 2019-5th April 2020, this amount increases to £3 per week, totalling £156, if your profits exceed £6,365.

Class 4 is calculated on a percentage of your profits that exceed a set amount set by HMRC. If your profits exceeded £8,424 from the 6th April 2018-5th April 2019, then 9% of Class 4 insurance will be calculated on profit over this amount. So if you made a profit of £9,000 you would pay 9% of £576 to HMRC for Class 4 national insurance. If your profits then reach £46,350 the percentage used reduces to 2% on profit over this amount.
For profit earned between 6th April 2019-5th April 2020, this amount of profits that isn’t calculated for national insurance increases to £8,632. After this, the 9% applies up to profits of £50,000, when the 2% calculation takes over.

To be entitled to the full state pension when you turn old enough to be eligible to claim the pension, you must have made national insurance contributions for at least 35 years. These do not have to be paid consecutively. If you paid national insurance for between 10 and 35 years you will only be paid a portion of the full pensionable allowance. If you are self-employed and your earnings are below the Class 2 amount of £6,205/£6365 for the 2018-19/2019-20 tax years then you can choose to pay the Class 2 national insurance to HMRC to add another year to the total of 35 needed for full state pension.
If you want to check with HMRC how many qualifying years you have made National Insurance payments for, they do have a phone line you can call. If you want to know about more ways to pay your NI then you can check this with your accountant or HMRC.

Tags: National Insurance, self-assessment, tax returns, personal tax

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