If you're self-employed, alongside the income tax you need to pay on your profits, you'll also need to make National Insurance contributions. Making contributions are important as it will entitle you to state benefits such as healthcare and a state pension, but your level of contributions can sometimes be difficult to calculate.
Types of National Insurance
Assuming that you are self-employed, there are two types of National Insurance contributions which you may be eligible for. The amount you pay varies depending on your annual profit.
Class 2 National Insurance Contributions
If you make profit of up to £8,060 you'll be likely to make class 2 contributions. The rate of payment is due at a rate of £2.80 per week. However, if your annual profits are below £5,965 over the year, you are technically exempt, but you will need to claim for it.
Class 4 National Insurance Contributions
Any profits above £8,060 over the year will see you paying class 4 contributions. These are set at a rate of 9% on profits between £8,060 and £42,385. After the £42,385 threshold has been crossed the rate falls down to 2%
Self-employed VAT (Value Added Tax)
If your turnover is more than £79,000 for the tax year, you will need to register to pay/claim VAT. Under this amount you can register voluntarily, which might be worthwhile if your business can claim back a lot of VAT for its expenses and expenditures.
If you're not VAT registered you cannot claim or charge VAT, but you should use prices including VAT when claiming for expenses and expenditures.
If you are VAT registered then you are obliged to charge it on all goods and services you supply which are not VAT exempt.
If your turnover is less than £150,000 it could be worth considering signing up for the flat-rate scheme. This will simplify your accounting and reduce your admin costs, by calculating your VAT payments as a percentage of you VAT-inclusive turnover.
Self-employed Capital Gains Tax
You may have to pay business capital gains tax if you have made a profit from selling your business or any of its assets. This may also apply to your home if you have used part of it exclusively for business. HMRC define 'exclusively' as meaning that part of your home is used for business at all times. Whereas a home used 'solely' for business, is one which has an area used purely for business, but part of the time e.g. an office, and therefore capital gains tax is not applicable.