What is Class 2 and Class 4 National Insurance?
Sole traders pay National Insurance differently to employees. Here's a plain-English guide to Class 2 and Class 4 NI for 2025/26 - what they are, how much you pay, and what they're for.
7/29/20262 min read
What is Class 2 and Class 4 National Insurance?
As a sole trader, you pay National Insurance differently to employees. Instead of having it deducted through PAYE, you pay it as part of your Self Assessment tax return, based on your annual profits. There are two types: Class 2 and Class 4.
Class 2 National Insurance
Class 2 NI used to be a compulsory flat-rate weekly payment for all self-employed people above a certain profit level. Since April 2024, it's no longer compulsory for most sole traders.
In the 2025/26 tax year, if your profits are above the Small Profits Threshold of £6,845, your Class 2 contributions are treated as having been paid automatically - you don't actually pay anything, but you still receive a qualifying year towards your State Pension and other contributory benefits.
If your profits are below £6,845, you won't build up a qualifying year automatically. In this case, you can choose to pay Class 2 contributions voluntarily at £3.50 per week (2025/26 rate) to protect your State Pension entitlement. This is good value - it's a small weekly cost that keeps your NI record intact.
Class 4 National Insurance
Class 4 NI is the main NI contribution for sole traders. It's calculated as a percentage of your profits above a certain threshold, similar to how income tax works.
In the 2025/26 tax year:
• 6% on profits between £12,570 and £50,270
• 2% on profits above £50,270
So if your profit is £25,000, you'd pay Class 4 NI at 6% on £12,430 (the amount between £12,570 and £25,000) - which works out at £745.80.
Class 4 NI is paid alongside your income tax through Self Assessment - there's no separate payment process.
What does NI actually give you?
Your NI contributions count towards your qualifying years for the State Pension. You need 35 qualifying years to receive the full new State Pension, which is £221.20 per week in 2025/26.
Class 2 contributions (when treated as paid or paid voluntarily) are what build your qualifying years. Class 4 contributions don't directly build your State Pension record - they're effectively an additional tax on profits - but because Class 2 is treated as paid when your profits are above the threshold, you still get the qualifying year.
NI contributions also count towards eligibility for Maternity Allowance and some other contributory benefits.
How is it paid?
Both Class 2 and Class 4 NI are calculated through your Self Assessment tax return. When you complete your return, HMRC works out what you owe in income tax and Class 4 NI together, and that's the bill you receive.
You pay it the same way you pay your income tax - by the 31 January deadline, with any payments on account due in January and July if your total tax bill exceeds £1,000.
What if I also have employment income?
If you're both employed and self-employed, your employer deducts Class 1 NI on your wages through PAYE. You still pay Class 4 NI on your self-employment profits through Self Assessment. HMRC will cap your total NI if you've paid too much across both sources.
Useful tools
If you want to work out your likely tax and NI bill before your return is due, our Tax Filing Software directory includes tools that calculate this as you go.
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