Self employed people pay National Insurance Contributions in a different way to employed people. Most self employed people pay Class 2 and Class 4 National Insurance Contributions.

Class 2 National Insurance Contributions

Class 2 National Insurance Contributions (NICs) are paid at a flat weekly rate, currently set at £2.40 per week. If you earn more than £5,075 per year, you have to pay Class 2 NICs.

Class 2 NICs are paid every month or every quarter to HM Revenue and Customs. If you pay monthly you can set up a direct debit; quarterly payments are billed.

Class 2 NICs do not count towards Jobseekers Allowance, Statutory Sick Pay, or the additional State Pension. You should consider making private arrangements to replace these.

Some self-employed people do not have to pay Class 2 NICs. You are exempt if you are under 16 years old, or over the state pension age. You can also apply for a small earnings exception if you expect to earn less than £5,075 in the coming tax year, which would exempt you from Class 2 NICs.

Class 4 National Insurance Contributions

If you are self employed and earn more than £5,715 in the tax year 2009-10, you will also have to pay Class 4 NICs. These are paid through self assessment.

Any profits between £5,715 and £43,875 will attract NICs at 8 per cent. You will have to pay a further 1 per cent of any profits above £43,875.

Again, you will not have to pay Class 4 NICs if you are under the age of 16 or over the state pension age.