National Insurance for the Self-Employed — Everything You Need to Know About Contributions and Benefits

What is National Insurance and Who is Obligated to Pay?

National Insurance is a legal system that provides social protection for the self-employed and employees — primarily during periods when you cannot earn income (illness, loss of work capacity, retirement age). For the self-employed, it is not just a right — it is a legal obligation.

If you are self-employed and have registered a business (exempt or licensed), or you are a private limited company owner, you must pay national insurance contributions. It does not matter whether you made a profit or loss in the year — the payment is mandatory. This is different from income tax, which is calculated based on actual profit.

National Insurance covers several types of benefits: old-age pension, disability allowance, Holocaust survivor's pension, sick pay (under certain conditions), and maternity allowance. Each has its own conditions and entitlements.

In short: National Insurance is like "compulsory savings" that the law imposes on you, but in return you receive financial protection in difficult times.

Who Must Pay National Insurance Contributions?

Not every self-employed person pays the same amount. It depends on the type of business you have and your income.

Exempt business owner — If you are an exempt business owner, you are also exempt from national insurance contributions on income from the business itself. However, if you have additional income (for example, salary from employment), you pay national insurance on that income. This is a point that is not always clear — an exempt business owner who also works as an employee pays only on the employment income.

Licensed business owner — If you are a licensed business owner (reporting income tax), you pay national insurance contributions on reported profit. The rate varies according to your income and age.

Private Limited Company Owner — Company owners pay national insurance contributions if they work in their own company (considered self-employed). They also pay on salary they transfer to themselves from the company.

Employee Working Also as Self-Employed — If you are an employee and have a business on the side, you pay national insurance contributions on both incomes (usually at different rates).

How are National Insurance contributions calculated for the self-employed?

National Insurance contributions for the self-employed are calculated as a percentage of your income. The rate varies depending on several factors: your age, the type of business you operate, and your annual income.

Generally, a self-employed person pays between 11% and 12% of their profit (the exact rate depends on the year and any changes in the law). There is also a minimum threshold — even if your profit is very low, you pay a minimum amount. There is also a maximum threshold — if your profit is very high, you do not pay on the excess amount.

For example: a self-employed person who earned 100,000 NIS in a year pays National Insurance contributions on that amount at the rate for that year (assume 12%). However, if they earned only 10,000 NIS, they still pay the minimum contribution (as set by law).

Important to know: National Insurance contributions are paid in addition to income tax. They are not deductible from one another. If you pay income tax, you still pay your full National Insurance contributions.

Steps for National Insurance Registration and Reporting

If you have opened a new business, you must register with the National Insurance. Registration is not automatic — you must do it yourself or with the help of an accountant.

1. National Insurance Registration: When you register a new business (through the tax authority or through the agency managing specific funds), you typically receive a National Insurance number. If you did not receive one, you must register directly with the National Insurance office or through their website.
2. Annual Income Reporting: Each year, you report your profit to the tax authority (through an annual report or advance payment report). This report also serves as the basis for calculating National Insurance contributions.
3. Payment of Contributions: National Insurance contributions are typically paid in periodic installments (monthly or quarterly), according to National Insurance guidelines. You can pay directly or through your employer (if you are also an employee).
4. Reporting Changes: If your income changes significantly or you discontinue your business, you must notify the National Insurance. This is important to avoid overpayments or unwarranted debts.

Most of the clients we see make a mistake at some stage of the reporting process — either they forget to report a change, or they don't understand how to calculate income properly. This is exactly where an accountant can save you time and errors.

What You Need to Know About National Insurance Contributions and Benefits

National insurance contributions are essentially a "payment for membership" — you pay so that you have the right to receive a pension or assistance in times of hardship. However, there are several important things to understand:

Rights to old-age pension: To receive an old-age pension, you must have a minimum "participation" period in the national insurance system. This means you need sufficient years of contributions. If you became self-employed only a few years ago, you may not yet be entitled to a full pension. However, every year of contributions accumulates in your account.

Sick pay and disability benefits: If you become ill or are injured on the way to work, you may be entitled to sick pay or disability benefits. However, you must prove the illness or disability with medical documentation, and you must notify the National Insurance Institute in a timely manner.

Tax advance payments and national insurance: If you pay tax advance payments as a self-employed person, you still must pay national insurance contributions separately. The advance payments are for income tax, not for national insurance. These are independent obligations.

Tax benefits on insurance contributions: In certain cases, self-employed individuals can use part of their national insurance contributions as a deductible expense from income tax. However, this depends on your type of business and certain conditions. This is a question worth clarifying with a certified accountant, as it could save you money at year-end.

Common National Insurance Mistakes — and How to Avoid Them

• Failure to report income changes: Self-employed individuals whose income has decreased significantly sometimes fail to report this to the National Insurance Institute. This can lead to overpayment — you pay premiums on income that no longer exists. Always report significant income changes.
• Confusion between exempt business owner and business owner: An exempt business owner thinks he pays national insurance on the business, but he is actually exempt. However, if he has other income (salary, investments), he pays insurance on those. This confusion can lead to incorrect reporting.
• Failure to report closed business: A self-employed person who closed his business does not always report this to the National Insurance Institute. He continues to receive invoices for payment, which can lead to unnecessary debts.
• Non-payment during financial difficulties: When a self-employed person faces hardship, he sometimes stops paying national insurance premiums. However, this creates a debt that accumulates with interest. There are ways to request payment deferral or arrangement, but you need to act early.
• Ignorance of entitlements: Many self-employed people do not know they are entitled to sick pay or disability allowance. They suffer in silence instead of filing a claim. If you become ill or injured, check your rights.

When Should You Contact an Accountant Regarding National Insurance?

National insurance is a subject that accountants frequently deal with, as it is directly related to income reporting and tax planning. If you fall into any of the following categories, it is advisable to contact an accountant:

If you have opened a new business: At the opening stage, it is important to determine what type of business you want (exempt or authorized), as this affects national insurance contributions and income tax. An accountant can help you choose the best path for you.

If your income changes significantly: If your income drops by 30% or more, or if you have moved to a much better year, you need to report it. An accountant can help you update your report on time and avoid overpayment.

If you are both an employee and self-employed: This situation is more complex. You need to pay national insurance in two places, and there are certain rules about how it is calculated. An accountant can ensure you are paying only the correct amount.

If you are struggling to obtain documents or understand requirements: National insurance can be bureaucratic. If you are unsure which documents you need or how to apply for a pension, an accountant can help you navigate the process.

If you are planning to retire or change your self-employment status: Retirement, transition to employment, or closing a business — all of these are changes that should be planned in advance. An accountant can help you understand the impact on national insurance and pension rights.

Practical Example: A Self-Employed Person Who Opened a Business in January

Let's look at a real example. Dan is a graphic designer who opened an authorized business in January 2026. He planned that his profit in the first year would be 120,000 NIS.

As an authorized business owner, Dan must pay national insurance contributions on his profit. Assuming the insurance rate is 12% (a hypothetical figure), he pays approximately 14,400 NIS per year (in monthly or quarterly installments). This is in addition to his income tax.

At the end of the year, Dan files an annual report with the tax authority showing his profit. He also reports the same profit to the national insurance. If his profit was exactly 120,000 NIS, there's no problem — he pays contributions on this amount.

But suppose Dan made an error in calculating his expenses, and his actual profit was only 80,000 NIS. If he didn't update the national insurance, he's still paying contributions on 120,000 NIS, which is too much. This is exactly where an accountant can help him correct the report and get a refund.