National Insurance Contributions - FAQs
What are National Insurance (NI) Contributions?
National Insurance (NI) contributions are a tax on earnings and self-employed profits paid by employees, employers and the self-employed.
They can help to build your entitlement to certain benefits depending whether you are employed or self-employed, such as the State Pension and Maternity Allowance.
Note – the following information applies to the 2025/2026 tax year.
How do I make National Insurance (NI) Contributions as a Self-Employed Sole Trader?
Self-Employed Sole Traders NI contributions are calculated and paid via an annual self-assessment tax return.
The two types of NI paid by Sole Traders are as follows;
Class 2 NI - £3.50 per week, paid on profits below £12,570 per year.
Class 4 NI - 6% on profits between £12,570 and £50,270, 2% on profits over £50,270.
How do I register for National Insurance (NI) as a Self-Employed Sole Trader?
When you register as self-employed with HMRC (www.gov.uk/register-for-self-assessment/self-employed ), you will automatically be signed up to file an annual self-assessment tax return.
The self-assessment tax return will record any NI contributions and payments.
How do I make National Insurance (NI) Contributions as a Limited Company Director?
As a limited company director, you will need to consider if you are already paid a PAYE salary or make NI contributions outside of the limited company.
If you do not, then the limited company will need to register for PAYE and run a directors payroll to enable you to earn NI contributions.
NI contributions are calculated between 6th April and 5th April each year. You will need to be paid at least £5,000 per year as a directors salary to earn NI contributions.
Employees (including Company Directors) Class 1 NI is payable at 8% on earnings above £12,570 per year up to £50,270 per year. The company will also pay Employers Class 1 NI of 15% on earnings of over £5,000 per year.
Most limited company directors will earn a salary of below £12,570 per year and take any additional income as dividends. However, they will still receive NI contributions as pay is above the £5,000 Class 1 Employer NI threshold.
Limited companies can also claim the employment allowance to offset the first £10,500 of Employers Class 1 NI, see article here - https://matrixaccountancyservices.org.uk/news/employment-allowance-for-paye-payroll
Will I pay National Insurance (NI) on Dividends as a Limited Company Director and/or Shareholder?
No, NI is not payable on dividend income. Dividends are taxed at 8.75% for income between £12,570 and £50,270, this increases to 33.75% for income above £50,270 and to 39.35% for income above £125,000.
The first £500 of dividends received are not taxable due to the dividend allowance.
Dividend tax is calculated by completing a directors annual self-assessment tax return.
What is a National Insurance (NI) number?
Your NI number is your unique identification number, this ensures that your NI contributions and tax are correctly calculated and recorded by HMRC.
You can apply for an NI number if you don't have one here - www.gov.uk/apply-national-insurance-number
What are Class 1a and 1b National Insurance (NI) contributions?
Class 1a and 1b NI contributions are payments made by employers on some employee benefits classified as "Benefits In Kind" (BIK).
An annual P11d form is completed by employers (due 6th July for the prior tax year) to declare any taxable benefits in kind received.
Employees will also pay income tax on benefits in kind. This is calculated and paid via PAYE.
What are Class 3 National Insurance (NI) contributions?
Class 3 NI contributions are voluntary payments used to fill gaps in your NI contributions record. This may help you to qualify for benefits such as the state pension.
Further Information
National Insurance (NI)is paid by employees and the self-employed over 16 years old and below the state pension age.
Details of your NI contributions to date can be obtained from HMRC or accessed via your online personal tax account.
For further information and guidance please contact will@matrixaccountancyservices.com or call us on 01788 486065.