Class 4 National Insurance Explained | Your Guide to UK Contributions

What Is National Insurance?

National Insurance Contributions (NICs) are mandatory payments made by workers and employers in the UK to fund state benefits, including State Pension, healthcare, and other social security programs. For self-employed people.

NICs fall into two primary categories:  

Class 2 NICs

Class 2 NICs are a flat rate paid by self-employed individuals whose profits exceed the Small Profits Threshold. These contributions help you qualify for certain state benefits such as the State Pension, Maternity Allowance, and Bereavement Support Payment.

Class 4 NICs

Class 4 NICs are calculated based on your annual profits and are paid in addition to Class 2 NICs if your earnings exceed a specified threshold. Class 4 contributions do not count towards state benefits directly but are required to support the UK’s National Insurance system.

How to Pay National Insurance When Self-Employed?

As a self-employed individual, it’s crucial to register for Self Assessment with HMRC and calculate your profits to determine your Class 2 and Class 4 National Insurance contributions. Class 2 is a flat weekly rate, while Class 4 is based on your profit levels. Complete your annual Self Assessment tax return to declare your income and expenses, and HMRC will calculate your total National Insurance alongside your income tax. Payments can be conveniently made through your online HMRC account using methods such as direct debit or online payment. Maintaining detailed records of your earnings and expenses is essential for accurate reporting. Here is the process:

1. Register for Self-Assessment: Ensure you are registered with HMRC for self-assessment as a self-employed person.
2. File Your Tax Return: Submit your self-assessment tax return annually by the 31 January deadline.
3. Calculate Your NICs: HMRC will automatically calculate your Class 2 and Class 4 National Insurance contributions based on your reported profits.
4. Pay Online or via Direct Debit: You can pay your National Insurance directly through your HMRC online account or set up a direct debit.

How Much Class 4 National Insurance Do You Pay?

Class 4 National Insurance contributions are based on a percentage of your annual profits. For the tax year 2024/2024, the rates are as follows:

• Profits between £12,570 and £50,270: 10.25%
• Profits above £50,270: 3.25%

Example: If your annual profit is £60,000, you would calculate your Class 4 NICs as follows:

• Profits up to £50,270 at 10.25%: £50,270 x 10.25% = £5,157.68
• Profits above £50,270 at 3.25%: (£60,000 – £50,270) x 3.25% = £315.78
• Total Class 4 NICs Due: £5,157.68 + £315.78 = £5,473.46

How Much Do I Need to Pay?

Your total National Insurance Contributions will include both Class 2 and Class 4 NICs if your profits exceed the respective thresholds:

• Class 2 NICs: Flat rate of £17.95 per week (for the 2024/2024 tax year) if your profits exceed £12,570.
• Class 4 NICs: As calculated based on your profits.

Difference Between Class 2 and Class 4 National Insurance

While both Class 2 and Class 4 NICs are payable by the self-employed, they have different purposes:

• Class 2 National Insurance: A flat rate of £3.45 per week for self-employed individuals with profits of £6,725 or more per year.

  Class 4 National Insurance: Calculated as a percentage of profits, with 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.