When you work for yourself, you are called a self-employed and are required to pay tax and National Insurance contributions from your income.
As soon as you become self-employed, either as a sole trader or partnership, you must tell HMRC immediately. And, you need to register online for paying taxes. You must do so by October 5 after the end of the tax year because failing to do so will only result in penalties. Moreover, you will also need a National Insurance number to make contributions which you can find on your tax return.
Being a self-employed, you need to pay two types of National Insurance called Class 2 National Insurance contributions and Class 4 National Insurance contributions. However, if you are under 16 or have reached state pension age, you do not have to make Class 4 or Class 2 NICs.
One of the benefits of building up Class 2 contributions is it entitles you to other benefits. For paying Class 2 contributions, you need to get registered, first then only HMRC will send you a payment request through which payment is possible. You need to pay such contributions if you make profits up to £8,060 in 2015-16 tax year. You need to pay £2.80 a week and if your annual profits fall below £5,9645 in 2015-16, you can claim the exemption. You also need to ensure your payments reach in time to HMRC.
Similarly, you have to pay Class 4 contributions if you make profits above £8,060 in 2015-16. In such contributions, you usually have to pay 9% on the profits between £8,060 and £42,385 in 2% on the profits above £42,385 in 2015-16 tax year. Unlike, Class 2 contibutions, Class 4 contributions does not provide any benefit entitlements.
When you reach the State Pension age (or up to 4 months after this to pay off any contributions you owe), you should stop paying Class 2 National Insurance. You should also stop paying Class 4 contributions from 6 April after reaching your State Pension age.
In case if you have any enquiries regarding National Insurance and want some changes in your personal details, you can contact HMRC.
