National Insurance Contribution Overview
This article gives an overview of the national insurance contribution and what it means for you as a self employed individual or as a Director of a limited company.
Overview:
You pay national insurance contributions to qualify for certain benefits and the state pension. For this you must have a national insurance number before you can start paying any contributions.
Who pays:
You pay a mandatory contribution if you are 16 or over and either:
- An employee earning more than £242 per week from one job.
- Self employed and making a profit of more than £12,570 a year.
You do not pay National Insurance Contributions, but still qualify for certain benefits and the state pension if you are either:
- An employee earning from £123 to £242 a week from one job.
- Self employed and your profits are from £6,725 to £12,570 a year.
You contributions are treated as having been paid to protect your national insurance record. You can also make voluntary contributions to avoid gaps in your national insurance contributions and help ensure you qualify for certain benefits and the state pension.
How much you pay:
Self-employed:
As a self-employed individual you contribute depending on your profits. Most people will pay both tax due and the contribution through Self-Assessment which needs to be completed yearly by the 31st of January.
If your profits are from £6725 to £12570 a year, your contributions are treated as having been paid to protect your national insurance record.
You may be able to pay voluntary contributions to avoid any gaps in your record if you:
- Have profits of less than £6725 a year from your self employment.
- Have a specific job.
If you have gaps and do not pay voluntary contributions, this may affect the benefits you can get and your state pension.
Directors:
Directors are classed as employees and pay national insurance on annual income from salary / bonuses over £12570.
Contributions are worked out from their annual earnings rather than from what they earn in each pay period.
There are different rules on dividends.
To find out more visit https://www.jsrmanagement.co.uk/
By Mark Lawson
