Harry's hints

Contractors/Freelancers - Protecting Your Basic State Pension 

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.

Harry's Hint - 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 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.