Sole traders pay Class 2 and Class 4 National Insurance on their profits. Class 2 is a flat weekly rate (£3.45) that counts towards your State Pension. Class 4 is a percentage of profits (6% then 2%) that goes to HMRC but doesn't add pension entitlement. Both are calculated and paid through your Self Assessment tax return.
This guide explains how sole trader National Insurance works, current rates, and how to calculate what you owe.
National Insurance Classes for Sole Traders
The Two Classes You Pay
| Class | Rate | Purpose | |-------|------|---------| | Class 2 | £3.45/week | State Pension entitlement | | Class 4 | 6%/2% of profits | Revenue contribution |
Both are separate from the Class 1 NI that employees pay through PAYE.
What Each Class Does
| Class | Contributes To | |-------|----------------| | Class 2 | State Pension, Maternity Allowance, Bereavement Support | | Class 4 | General government revenue only |
Important: Class 4 doesn't count towards any benefits—only Class 2 builds your entitlements.
Class 2 National Insurance
Current Rate
| Period | Rate | |--------|------| | Weekly | £3.45 | | Annual (52 weeks) | £179.40 |
When You Pay Class 2
| Your Profits | Class 2 Treatment | |--------------|-------------------| | Over £6,725 | Mandatory (paid with tax return) | | Under £6,725 | Voluntary (optional) | | Under £6,725 with no payment | Risk gaps in NI record |
Small Profits Threshold
The Small Profits Threshold is £6,725 for 2024/25:
| Profits | Requirement | |---------|-------------| | £6,725 or more | Must pay Class 2 | | Under £6,725 | Can choose to pay voluntarily |
Why Pay Voluntarily
If profits are under £6,725, paying voluntary Class 2 is recommended:
| Benefit | Impact | |---------|--------| | State Pension | Need 35 qualifying years for full pension | | Gaps cost more later | Filling gaps retrospectively costs more | | Low cost | Only £179.40 per year | | Maternity Allowance | Requires NI contributions |
How to Pay Voluntarily
Apply to pay voluntary Class 2 through your Self Assessment tax return or contact HMRC.
Class 4 National Insurance
Current Rates (2024/25)
| Profit Band | Rate | |-------------|------| | Under £12,570 | 0% | | £12,570 – £50,270 | 6% | | Over £50,270 | 2% |
How Class 4 Is Calculated
Class 4 applies to profits between the lower and upper limits:
| Calculation | Amount | |-------------|--------| | Lower Profits Limit (LPL) | £12,570 | | Upper Profits Limit (UPL) | £50,270 | | Band width | £37,700 | | Maximum at 6% | £2,262 |
Example: Class 4 Calculation
Profits: £35,000
| Calculation | Amount | |-------------|--------| | Profits | £35,000 | | Less: LPL | −£12,570 | | Taxable at 6% | £22,430 | | Class 4 NI | £1,345.80 |
Profits: £65,000
| Calculation | Amount | |-------------|--------| | First £12,570 | 0% = £0 | | £12,570 to £50,270 | £37,700 × 6% = £2,262 | | £50,270 to £65,000 | £14,730 × 2% = £294.60 | | Total Class 4 | £2,556.60 |
Total NI Calculation
Combined Class 2 + Class 4
| Your Profits | Class 2 | Class 4 | Total NI | |--------------|---------|---------|----------| | £10,000 | £179 | £0 | £179 | | £20,000 | £179 | £446 | £625 | | £30,000 | £179 | £1,046 | £1,225 | | £40,000 | £179 | £1,646 | £1,825 | | £50,000 | £179 | £2,246 | £2,425 | | £60,000 | £179 | £2,457 | £2,636 |
Example: Full Calculation
Sophie: Self-Employed Consultant
| Item | Amount | |------|--------| | Annual profit | £42,000 | | Class 2 | | | 52 weeks × £3.45 | £179.40 | | Class 4 | | | (£42,000 − £12,570) × 6% | £1,765.80 | | Total NI | £1,945.20 |
When You Pay
Payment Through Self Assessment
NI is calculated and paid with your Self Assessment:
| Deadline | What's Due | |----------|------------| | 31 January | Full year's Class 2 + Class 4 |
There are no separate NI payments—it's included in your tax bill.
Payment on Account
If your total Self Assessment bill (including NI) exceeds £1,000:
| Payment | When | |---------|------| | 1st payment on account | 31 January | | 2nd payment on account | 31 July |
Learn more: Payment on Account Explained
Employed AND Self-Employed
Paying Both Types of NI
If you have a day job plus self-employment:
| Source | NI Type | |--------|---------| | Employment | Class 1 (deducted by employer) | | Self-employment | Class 2 + Class 4 |
You may pay NI on both income sources.
Annual Maximum Limit
There's a maximum total NI you can pay in a year:
| Limit | Purpose | |-------|---------| | Annual maximum | Prevents excessive NI payments | | Applies when | Employment + self-employment NI is high |
If you think you've overpaid, apply for a refund after the tax year ends.
Example: Dual Income
James: Employee + Weekend Freelancer
| Income Source | Amount | NI Type | |---------------|--------|---------| | Salary | £35,000 | Class 1 (via PAYE) | | Freelance profit | £8,000 | Class 2 + Class 4 |
Freelance NI:
| Class | Calculation | Amount | |-------|-------------|--------| | Class 2 | £3.45 × 52 | £179 | | Class 4 | £0 (profit under £12,570) | £0 | | Total | | £179 |
James pays only Class 2 on his freelance income (profit is below Class 4 threshold).
National Insurance and State Pension
Building Your Pension
For full State Pension, you need 35 qualifying years of NI contributions:
| Contributions | Pension Entitlement | |---------------|---------------------| | 35+ years | Full State Pension | | 10-34 years | Proportional pension | | Under 10 years | No State Pension |
What Counts as a Qualifying Year
| NI Type | Counts? | |---------|---------| | Class 2 (self-employment) | Yes | | Class 1 (employment) | Yes | | Class 3 (voluntary) | Yes | | Class 4 (self-employment) | No |
Important: Class 4 NI does NOT count towards your pension—only Class 2.
Check Your Record
Check your NI record at gov.uk/check-national-insurance-record:
- See how many qualifying years you have
- Identify any gaps
- Check if you can fill gaps
Filling Gaps
If you have gaps in your NI record:
| Option | When | |--------|------| | Voluntary Class 2 | If self-employed with low profits | | Voluntary Class 3 | If not working (£17.45/week) | | Credits | If caring, ill, or receiving certain benefits |
You can usually fill gaps from the last 6 years.
NI for Different Profit Levels
Low Profit Scenarios
| Annual Profit | Class 2 | Class 4 | Total NI | |---------------|---------|---------|----------| | £3,000 | Voluntary £179 | £0 | £179 | | £5,000 | Voluntary £179 | £0 | £179 | | £6,725 | Mandatory £179 | £0 | £179 | | £10,000 | £179 | £0 | £179 | | £12,570 | £179 | £0 | £179 |
Medium Profit Scenarios
| Annual Profit | Class 2 | Class 4 | Total NI | |---------------|---------|---------|----------| | £15,000 | £179 | £146 | £325 | | £20,000 | £179 | £446 | £625 | | £25,000 | £179 | £746 | £925 | | £30,000 | £179 | £1,046 | £1,225 | | £35,000 | £179 | £1,346 | £1,525 |
Higher Profit Scenarios
| Annual Profit | Class 2 | Class 4 | Total NI | |---------------|---------|---------|----------| | £50,000 | £179 | £2,246 | £2,425 | | £60,000 | £179 | £2,457 | £2,636 | | £75,000 | £179 | £2,757 | £2,936 | | £100,000 | £179 | £3,257 | £3,436 |
Reducing Your NI Bill
Allowable Expenses
NI is calculated on profit, not income. Reducing profit reduces NI:
| Expense | Impact | |---------|--------| | Equipment | Reduces profit | | Software | Reduces profit | | Home office | Reduces profit | | Travel | Reduces profit |
Learn more: Sole Trader Expenses Guide
Pension Contributions
Personal pension contributions reduce your Income Tax but not National Insurance:
| Tax Type | Pension Effect | |----------|----------------| | Income Tax | Reduced by pension contributions | | Class 4 NI | NOT reduced by pension contributions | | Class 2 NI | NOT reduced by pension contributions |
Loss-Making Years
If you make a loss:
| Profit/Loss | NI Due | |-------------|--------| | Profit | Class 2 + Class 4 applies | | Loss | No Class 4; can still pay voluntary Class 2 |
NI Compared to Income Tax
Key Differences
| Aspect | Income Tax | National Insurance | |--------|------------|-------------------| | Personal Allowance | £12,570 (no tax) | None for Class 4 | | Starting threshold | £12,570 | £12,570 (Class 4) | | Rates | 20%/40%/45% | 6%/2% | | What it funds | General spending | Benefits and pensions |
Combined Marginal Rates
| Profit Band | Income Tax | Class 4 NI | Combined | |-------------|------------|------------|----------| | Under £12,570 | 0% | 0% | 0% | | £12,570 – £50,270 | 20% | 6% | 26% | | £50,270 – £125,140 | 40% | 2% | 42% | | Over £125,140 | 45% | 2% | 47% |
Common NI Questions
Do I Pay NI in My First Year?
Yes, if your profits exceed the thresholds. NI is calculated the same way from your first year of trading.
What If I Stop Being Self-Employed?
| Situation | Action | |-----------|--------| | Become employed | Employer deducts Class 1 | | Stop working | Consider voluntary Class 3 for pension | | Retire | No NI payable |
Can I Defer Class 4?
You can apply to defer Class 4 if you're employed AND self-employed and expect to hit the annual maximum. Contact HMRC before the tax year.
What About Directors?
Company directors pay Class 1 NI on salary (like employees), not Class 2 and Class 4. This is one reason some people incorporate.
Summary: Sole Trader NI Quick Reference
Classes You Pay
| Class | Rate | Threshold | |-------|------|-----------| | Class 2 | £3.45/week (£179/year) | Profits over £6,725 | | Class 4 | 6% | Profits £12,570–£50,270 | | Class 4 | 2% | Profits over £50,270 |
What Counts Towards Pension
| Class | Pension Entitlement? | |-------|---------------------| | Class 2 | Yes | | Class 4 | No |
Key Actions
- [ ] Calculate profit (income minus expenses)
- [ ] Class 2 applies if profit exceeds £6,725
- [ ] Class 4 applies if profit exceeds £12,570
- [ ] Pay with Self Assessment by 31 January
- [ ] Consider voluntary Class 2 if profit is low
Calculate Your NI with TaxFolio
TaxFolio automatically calculates your National Insurance:
- Profit calculation — income minus categorised expenses
- Class 2 + Class 4 — both calculated automatically
- Real-time estimate — see NI owed throughout the year
- Combined tax view — Income Tax + NI in one place
- Self Assessment filing — submit directly to HMRC
- From £69.99/year — affordable tax management
Start your free 30-day trial and understand exactly what NI you'll pay.