If you are in business as a sole trader or in a partnership, you are liable for self-employed National Insurance (NI) contributions. That generally means paying flat-rate Class 2 NI and profit-related Class 4 NI or voluntary Class 3 NI
Paying self-employed National Insurance contributions
You register to pay self-employed National Insurance contributions (NICs) as part of registering for tax self assessment.
Your NICs are due at the same time as income tax payments and are collected through self assessment - twice a year, by 31 January and 31 July.
You do not have to make NIC payments if you are under 16 or have reached state pension age.
Class 4 NICs
- Class 4 NICs are based on your level of profits. You must pay Class 4 NI if your profits are above the Lower profits limit (LPL) which is £12,570 in 2023/24;
- You pay 9% Class 4 NICs on profits from the LPL to the Upper profits limit (UPL) which is £50,270 for 2023/24 (reducing to 8% from April 2024);
- You pay 2% on profit in excess of the UPL of £50,270.
If you have more than one business, special rules can apply to the calculation of Class 4 NICs in some circumstances - for example, if one of your businesses makes a loss.
Class 2 NICs
Class 2 NICs are charged at a flat weekly rate of £3.45 and affect your entitlement to some benefits, such as the state pension.
The small profits threshold applies if your earnings are below £6,725 for 2023/24. Where this is the case, no Class 2 NICs are payable and an exemption is no longer required.
Class 2 NICs will be abolished entirely from April 2024.
Class 3 NICs
You may have gaps in your national insurance record if, for example, you did not pay contributions because of small profits.
If you are eligible, you can voluntarily pay Class 3 NICs for the past six years to ensure you receive a State Pension. Check your NI record using your HMRC personal tax account to find out how much you need to pay.
Class 3 does not entirely make up for a Class 2 shortfall for all benefits. Class 3 does not give entitlement to Employment and Support Allowance, Maternity Allowance or Bereavement Support Payment.