9. National Insurance

How you pay National Insurance Contributions (NICs) will depend on how you have set up your business.

If you run a limited company, you will pay yourself a monthly wage under Pay As You Earn and NICs will be added to this as with any other employee.

If you are self employed as a sole trader or a partner in a business, you usually pay two different types of NIC, called Class 2 and Class 4. Class 2 NICs are set at a flat rate per month which you can pay by monthly direct debit or quarterly bill. Bills are sent to you automatically after you register as self-employed with the tax office. Class 4 NICs are paid on top of Class 2 NICs if your profits are over a certain amount (around £ 5,255 a year) up to around £ 34,840 (these bands are usually increased every year so check with HMRC). The amount you pay is worked out as a percentage (eight per cent at the time of writing) of your profits between the upper and lower limits.

If you want or need to find out more about NICs, including exemptions, there is a useful guide called National Insurance Contributions for Self-employed People with Small Earnings that you can download from www.hmrc.gov.uk or get hold of from your tax office by quoting leaflet reference CF10.