Navigating self-employed taxes in the UK can be tricky, especially when it comes to National Insurance. If you’re unsure what it all means, you’re not alone. National Insurance is a tax on earnings that funds state benefits, but for freelancers and sole traders, understanding which "class" applies can be confusing.
This guide focuses on Class 4 National Insurance, breaking it down without the jargon. What is it? How does it differ from other classes? Who needs to pay it? We’ll cover all this and explain its impact on your tax bill, helping you manage your finances with confidence.
What is Class 4 National Insurance?
Class 4 National Insurance is a tax paid by self-employed individuals, including freelancers and sole traders, based on their annual profits.
Unlike other National Insurance contributions (NICs) that build your entitlement to state benefits, Class 4 is primarily a tax on your profits. You pay it as part of your annual Self Assessment tax return, alongside your income tax.
Think of it like this: if you were an employee, your employer would deduct Class 1 National Insurance from your salary. As a self-employed person, you handle your own taxes, and Class 4 is one of the key contributions you’ll make.
Is Class 4 NI different from other classes?
Yes, Class 4 NI is very different from Class 2, the other main class for self-employed individuals. While both relate to your self-employed status, they serve entirely different purposes.
So, what’s the real story behind Class 2 and Class 4? Let's break it down.
| Feature | Class 2 National Insurance | Class 4 National Insurance |
| What is its main purpose? | To build your entitlement to state benefits, like the State Pension. | A tax on your annual profits. It does not count towards your state benefits. |
| How is it calculated? | It was a flat weekly rate. From April 2024, you're treated as having paid it if your profits are above a threshold, so you don't pay anything but still get the benefits. | A percentage of your annual profits once they go over a specific threshold |
| Do I have to pay it? | You no longer have to pay it if your profits are over the threshold. If your profits are low, you can make voluntary payments to protect your benefits record. | Yes, it is a mandatory tax you must pay if your profits exceed the annual threshold. |
| Key takeaway: | Think of Class 2 as your ticket to future state benefits. | Think of Class 4 as a tax on your current success. |
The most important distinction to remember is what each class is for. Class 2 is about securing your future with state benefits, whereas Class 4 is simply a tax you pay on the profits you're making today.
Why am I paying Class 4?
Wondering why you’re paying Class 4 National Insurance? It’s a key part of the tax system for self-employed individuals in the UK.
You pay Class 4 NICs once your annual profits as a sole trader or freelancer exceed a certain threshold set by the government (£12,570 profit a year, see what classifies as a profit is here).
Think of it like the equivalent of Class 1 contributions that employees pay on their salaries. Essentially, it’s a tax on your profits, ensuring that self-employed people contribute to public funds based on what they earn.
So, if you're running a profitable business, you're required to pay Class 4 NICs on those earnings.
Class 4 NIC eligibility and profits threshold 2025/26
| Annual Profits | Class 4 National Insurance Rate (2025/26) |
| Up to £12,570 | 0% |
| £12,570 to £50,270 | 6% |
| Over £50,270 | 2% |
Examples of Class 4 National Insurance calculations
Let's see how this works in practice for a few self-employed people with different profit levels.
| Example | Annual Profit (2025/26) | Class 4 NICs Owed | Explanation |
| Sam (Freelance Writer) | £11,000 | £0 | Profit below £12,570 threshold. No Class 4 NICs owed. Class 2 NICs treated as paid, protecting pension. |
| Chloe (Graphic Designer) | £25,000 | £745.80 | No tax on first £12,570. Pays 6% on £12,430 (£25,000 - £12,570). |
| Alex (IT Consultant) | £60,000 | £2,456.60 | No tax on first £12,570. Pays 6% on £37,700 (£50,270 - £12,570) and 2% on £9,730 (£60,000 - £50,270). |
Do Class 4 NICs count towards State Pension?
No, Class 4 National Insurance contributions do not count towards your State Pension.
It’s a common point of confusion, but think of it this way:
- Class 4 NICs are essentially a tax calculated on your self-employed profits. They don't build up your entitlement to future benefits.
- Class 2 NICs are the contributions that actually build your "qualifying years" for the State Pension.
So, while you might pay both as a self-employed person, only your Class 2 contributions help you qualify for the State Pension and other related benefits.
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