Pay National Insurance when self-employed

If you're self-employed, you pay National Insurance contributions (NICs) on your profits. There are two types that apply to self-employed people:

• Class 2: A flat weekly rate that builds your entitlement to State Pension and certain benefits
• Class 4: A percentage of your profits above certain thresholds - this is purely a tax and does not contribute to any benefits

Both classes are calculated automatically when you complete your Self Assessment tax return and are paid alongside your income tax.

Important change from April 2024

From 6 April 2024, mandatory Class 2 National Insurance was abolished for self-employed people. If your profits are above the Small Profits Threshold, you are now automatically treated as having paid Class 2 - you do not need to pay separately, but you still receive the State Pension and benefit entitlement.

Class 2 National Insurance explained

Class 2 contributions are what build your National Insurance record for State Pension and contributory benefits. The key question is whether your profits are above or below the Small Profits Threshold.

If your profits are above the Small Profits Threshold

You do not need to do anything. When you file your Self Assessment tax return, you are automatically treated as having paid Class 2 for the year. This means:

• No Class 2 payment is collected from you
• You receive a qualifying year for State Pension purposes
• You maintain entitlement to contributory benefits like Maternity Allowance and Employment and Support Allowance

If your profits are below the Small Profits Threshold

You have a choice. You can either:

• Do nothing: You will not pay Class 2, but you will not receive a qualifying year for State Pension or benefit entitlement
• Pay voluntary Class 2: Pay the flat weekly rate to protect your NI record and benefit entitlement

Voluntary Class 2 is particularly important if you want to maintain eligibility for Maternity Allowance or if you have gaps in your National Insurance record that could affect your State Pension.

Class 3 voluntary contributions

If you have gaps in your National Insurance record that cannot be filled with Class 2 contributions (for example, years when you were not self-employed or employed), you can pay Class 3 voluntary contributions to protect your State Pension entitlement.

Class 4 National Insurance explained

Class 4 contributions are calculated as a percentage of your profits. Unlike Class 2, they do not count towards your State Pension or any benefits - they are purely a tax on self-employed profits.

You only pay Class 4 on profits above the Lower Profits Limit. There are two rates:

• Main rate (6%): Applied to profits between the Lower Profits Limit and Upper Profits Limit
• Additional rate (2%): Applied to any profits above the Upper Profits Limit

Calculating your Class 4 contributions

Class 4 is calculated on your taxable self-employment profits after deducting allowable expenses and capital allowances. The calculation works in bands, similar to income tax.

Example: If your profits are £35,000:

• First £12,570 - no Class 4 (below Lower Profits Limit)
• £12,571 to £35,000 = £22,430 at 6% = £1,345.80
• Total Class 4 for the year = £1,345.80

When and how to pay

You do not pay National Insurance separately. Both Class 2 (if you choose to pay voluntary contributions) and Class 4 are calculated automatically as part of your Self Assessment tax return and collected alongside your income tax.

Payments on account

If your Self Assessment bill (including Class 4 NI) is over £1,000, you will need to make payments on account. These are advance payments towards next year's bill, calculated as 50% of the previous year's bill.

• First payment on account: 31 January during the tax year
• Second payment on account: 31 July after the tax year ends
• Balancing payment: 31 January following the end of the tax year

If your income is lower than the previous year, you can apply to reduce your payments on account. However, if you reduce them too much, you will owe interest on the shortfall.

Why Class 2 contributions matter

Class 2 contributions (whether paid or treated as paid) are essential for building your entitlement to:

• State Pension: You need 10 qualifying years for any State Pension, 35 years for the full amount
• Maternity Allowance: Requires 13 weeks of Class 2 in the 66 weeks before your baby is due
• Employment and Support Allowance: Contributory ESA requires NI contributions in specific tax years
• Bereavement Support Payment: Your NI record affects what your surviving partner can claim

Trading allowance and National Insurance

If your self-employment income is £1,000 or less, you can use the trading allowance instead of calculating actual profits. This reduces your taxable profit to nil, meaning no income tax or Class 4 NI is due.

However, if you use the trading allowance and your profit is treated as nil, you will not receive automatic Class 2 credits. You may want to pay voluntary Class 2 to protect your NI record, especially if you have casual or part-time self-employment alongside other income.

Exemptions from self-employed National Insurance

In certain circumstances, you may be exempt from paying Class 2 or Class 4 contributions:

If you're employed and self-employed

If you have both employment income (where you pay Class 1 NI through PAYE) and self-employment income, you may be paying more National Insurance than necessary. When your combined earnings reach certain thresholds, you can apply for deferment.