If you've ever been a permanent employee, you'll know that National Insurance (NI) contributions are usually deducted from your salary each month, along with tax, via pay-as-you earn (PAYE).
These contributions are designed to cover the cost of health care, state pensions, some types of unemployment benefit and other 'safety net' expenses. They are, literally, insurance premiums collected from you by the state to offset the cost of your non-tax-generating time - i.e. illness and retirement. They are also compulsory and, together with income tax, they account for a significant chunk of your gross income.
Things change, however, when you become self-employed or run your own business, although the National Insurance payments are still compulsory.
When you become self-employed, the type of National Insurance contributions you have to make changes; whereas regular employees are required to make contributions in class 1, self-employed people have to make them in class 2 and class 4.
The good news is that class 2 contributions are based on a flat rate (£2.65 a week); the bad news is that class 4 contributions are based on a percentage of your overall profits, so you have to do some complicated sums before you can make your payment.
If you run your own business, things can get even more complicated. You have to pay employers' contributions for each of your staff, and the amount you pay for each employee depends on which band they fit into - there are loads of categories based on employees' differing levels and circumstances, so you've got to work out a specific amount for each person you employ.
In addition, you have to make National Insurance contributions for any benefits you give to your staff, and also for your own personal income. But help is at hand; there are loads of self-help tools available on the internet, such as HMRC's guide to self-employed contributions, and the rest of this section should give you a firm steer on what you need to do.