National Insurance should be paid by everyone who earns an income, with very few exceptions. Class 1 NI is deducted by employers from all salaries and wages and handed over to the Inland Revenue. It affects all employees taxed under Pay As You Earn but can also affect some freelancers even though they are self employed and pay tax via Self-Assessment. 

In old jargon, employees were taxed under Schedule E and the self-employed under Schedule D- hence the term ‘Schedule D number’, even though it was replaced by the Unique Taxpayer Reference (UTR) 9 years ago.

All self-employed people have to pay a flat rate NI per week, although it’s paid either monthly by Direct Debit or a quarterly bill: this is called Class 2 NI. On top of that freelancers also pay Class 4 NI based on the level of profits, and they pay it at the same time as their tax bill. But, as mentioned, some of you Self-Employed get caught between the two systems.

So if you work in a West End show or teach in a school as a freelancer you may get a payslip showing Class 1 NI deducted from your fees, and you can’t stop that happening. You have to include those gross fees received (that is before NI deductions) in your Schedule D accounts and then the Class 4 NI figure is based on those profits! So you end up paying NI twice on the same fees. Not fair! So when this happens quite a lot we can apply for Deferment of Class 2 and/or Class 4 NI, which means that you don’t pay the NI at the usual time but some 9 months after the tax year end when the Contributions Agency work out how much Class 2/4 you need to pay, if any. Under this Deferment scheme you won’t pay more than you would have done without it and you do get to pay it much later. 

You can also get Exemption from Class 2 NI if your profits are small-another way to avoid paying more NI than you have to.

If you want to know more about paying less NI-call Angie Ayre on 01283 531242