Paying National Insurance contributions from your wages or salary builds up the amount of State Pension you are entitled to. The amount of National Insurance contributions you pay depends on how much you earn…

Employed

If you are in paid work for an employer and you earn more than £110 a week (for 2009/10), you will pay National Insurance contributions for that week. This figure is called the primary threshold. Your employer takes these contributions out of your pay.

Self-Employed

However if you are self-employed, you pay National Insurance contributions yourself. You will have to pay flat-rate Class 2 contributions at £2.40 per week however much you earn, unless you have a Certificate of Small Earnings Exception which says you do not have to pay Class 2 National Insurance contributions. To build up a qualifying year of entitlement to a State Pension through earnings in 2009/10, you need to have earnings of at least £5,075 a year on which you have paid National Insurance contributions, or are treated as having paid contributions.

Paying Class 2 National Insurance contributions entitles you to most of the state benefits that employed people paying Class 1 NICs are, i.e. the Basic State Pension (BSP) and bereavement benefits. The main exception is that you will not be entitled to Additional Pension benefits whilst you are self-employed.

We provide expert accounting and taxation advice and services on all aspects of contracting and freelancing from IR35 and related working practices to travelling expenses, payroll, VAT and self-assessment. For a free consultation, call us now on 0800 731 5368 or send an email to info@eagleconsulting.co.uk.

1. Update your CV - log on to as many job boards as you can and network - if you are currently struggling to obtain contract work, a good starting point is to re-visit the details within your CV, specifically in terms of content and presentation. Agencies and Clients are receiving enormous levels of applications per job advertisement these days, applying that little bit of effort in revamping your CV and keeping a closer eye on Job Boards may be the key. Keep your skills up to date, network with colleagues and clients, be proactive.

2. Tax liabilities – in light of the current contract market conditions and recession, it is more important than ever to ensure that you have set aside funds to meet your tax liabilities – e.g. Corporation Tax, VAT, PAYE, Self Assessment Tax. 

3. Think smart with your business bank account - put aside any spare company funds into a high interest savings account.  You can also open very competitive current business accounts – many now with no transaction charges.