The Small Earnings Exception allows self employed people with low earnings an exemption from Class 2 National Insurance Contributions.

How do I get a Small Earnings Exception?

If your earnings from self employment are less than £5,075 in the tax year 2009-10, or were less than £4,825 during 08-09, you can apply for a Small Earnings Exception.

For the purposes of the Small Earnings Exception you work out your earnings by deducting business expenses from your business income. The Exception is calculated with regard to net earnings. Income from other sources, including regular employment, should not be counted.

If you fall below the exception limit, you can apply for a Certificate of Small Earnings Exception by completing and returning form CF10 to HM Revenue and Customs. You can get this form by clicking here [pdf].

Should I pay NICs anyway?

Paying Class 2 NICs means that you build up an entitlement to certain benefits, including the basic State Pension and Incapacity Benefit.

If you qualify for a Small Earnings Exception and stop paying Class 2 NICs, your entitlement to these benefits may be affected. As such, you should think about continuing to pay Class 2 NICs voluntarily, in order to maintain your access to these important benefits.