Sole trader National Insurance explained
Sole traders need to register to pay National Insurance contributions to HMRC. This guide will take you through what they are, how much you need to pay, and how to make your payment.
What is National Insurance?
National Insurance contributions qualify you for certain benefits and a State Pension. You stop paying National Insurance when you reach State Pension age, unless you’re paying Class 4. Class 4 contributions stop 6 April after you reach State Pension age.
You need a National Insurance number before you can can start paying.
Do I need to pay National Insurance?
Most sole traders need to pay National Insurance. But, if your profits are low or you have a specific job listed below you don’t need to. You can make voluntary contributions if you want, as this will stop there being any gaps in your record.
Here are the jobs where you don’t need to pay National Insurance:
- Examiners, moderators, invigilators
- Your business involves land or property
- Ministers of religion who don’t receive a salary or stipend
- If you make investments for yourself or others. This should not be a business, and you shouldn’t get a fee or commission
How much National Insurance do I pay as a sole trader?
There are 2 different classes of National Insurance you could pay if you’re a sole trader. These depend on your profits, which you get by deducting your expenses from your income.
| Class | Profit) | Rate for 2020/21 |
|---|---|---|
| Class 2 | £6,515 or more a year | £3.05 a week |
| Class 4 | £9,568 or more a year | 10.25% on profits between £9,568 and £50,270 3.25% on profits over £50,270 |
Voluntary National Insurance contributions
To avoid gaps in your record, you can make voluntary National Insurance contributions. If you have too many gaps you may not have enough qualifying years to get a full State Pension. But, voluntary contributions don’t always increase your State Pension. It’s a great idea to get financial advice before making the decision to pay voluntary contributions.
You need to check if you’re eligible to pay voluntary contributions. Usually you can only pay for gaps in your record from the past 6 years, but depending on your age this can be extended.
Check your eligibility on the HMRC website. This will also let you know which class of National Insurance you should be paying. You will pay either Class 2 or Class 3.
| Class | Rate for 2020/21 |
|---|---|
| Class 2 | £3.05 a week |
| Class 3 | £15.30 a week |
How to pay National Insurance contributions
Paying your National Insurance is simple! Usually you pay it through your Self Assessment tax return to HMRC.
Accounting software for sole traders
It’s easy to take control of your finances as a sole trader. Bokio accounting software has everything you need to prepare for your Self Assessment tax return in one place.
Bokio’s bookkeeping and invoicing software keeps accounting simple, so you have more time to spend on your business.
This article was updated April 2022
