How to pay N.I contributions when both employed and self-employed?

Question

I make less than £6k a year from my self-employed work, and N.I is taken off my employment PAYE.

Should I be paying N.I contributions for my self-employed work as well?

Answer 1

You probably don't need to pay any NI on your self-employed income but you do need to do some paperwork to establish this and stay on the right side of HMRC.

Firstly, if you haven't already, you should tell HMRC that you are doing self-employed work. This will ensure that they know you need to do a self-assessment tax return. It will also by default make you liable for Class 2 National Insurance contributions.

Class 2 NI is a flat rate charge currently set at £2.70/week. However there is what's called the "small earnings exception". If your anticipated earnings from self-employment are below a certain level you can apply for an exemption from class 2 NI. The threshold for 2013/14 is £5,725, so you're probably eligible.

There's actually a combined online form on the HMRC site currently which allows you to register as self-employed and claim the small earnings exception at the same time.

For completeness it's worth mentioning class 4 NI which also applies to self-employed people. This is calculated on self-employed earnings on a percentage basis from the figures you supply in your tax return. However class 4 has a separate minimum limit, £7,755 in 2013/14, so you should definitely not have to pay any class 4.

Answer 2

My understanding (from what I have read on the governments websites and from what happened when I filled in my tax returns in the past) is that the allowances for Employed (Class 1) and Self-Employed (Classes 2 and 4) NI are seperate. So AIUI if you are both employed and self-employed you get both sets of NI allowances (but only one set of tax allowances). In particular if you have only a small ammount of self-employed income your self-employed income is likely to be NI free.

As someone who is self-employed you may have to pay class 2 and class 4 NI. Class 2 is a fixed fee per week that you are you either pay it of you don't depending on whether your profits (self employment income minus self employment expenses) are above or below the threshold. Class 4 NI is a percentage of profits above it's threshold.

Previously you had to pay class 2 NI directly unless you explicitly claimed an exemption for it. This was tricky if you werent sure whether your income would be above the threshold or not. It also meant a load of paperwork for the governement to collect a small ammount of tax.

Nowadays both Class 2 and class 4 NI are collected through the tax return system. So you just register as self-employed, complete your tax returns accurately and pay what it tells you to.