UK Self-Employed National Insurance: Class 2 and Class 4

UK self-employed National Insurance changed materially from 6 April 2024. The Spring Budget 2024 abolished compulsory Class 2 contributions and reduced Class 4 from 9% to 8%, then further to 6% from April 2024. The structure simplifies the position but introduces nuance for those needing State Pension credits at low income levels.

This guide covers the current 2026/27 position, the State Pension implications, and the voluntary contribution routes.

Class 4 NI on profits

Class 4 NI applies to self-employed profits above the Lower Profits Limit (GBP 12,570 for 2026/27, aligned with the Personal Allowance). The main rate is 6% on profits between GBP 12,570 and the Upper Profits Limit (GBP 50,270), then 2% on profits above. Class 4 is collected through Self-Assessment along with income tax.

The rate reduction from 9% to 6% over 2024 was a substantial cut. A self-employed person on GBP 35,000 of profit pays Class 4 NI of around GBP 1,346 a year - down from around GBP 2,019 under the prior 9% rate.

Class 4 does not build State Pension credits directly. State Pension entitlement requires Class 2 or Class 1 contributions. Self-employed earning above the Small Profits Threshold (GBP 6,725) used to automatically get Class 2 credits; from April 2024 the entitlement is now automatic through Class 4 paid above the Lower Profits Limit, treated as if Class 2 had been paid.

Worked example: a sole trader with GBP 45,000 profit pays Class 4 of (45,000 - 12,570) * 6% = GBP 1,946. The same on GBP 60,000 profit: 6% on GBP 37,700 (GBP 2,262) + 2% on GBP 9,730 (GBP 195) = GBP 2,457.

Class 2 NI: now voluntary

Compulsory Class 2 NI was abolished from 6 April 2024 for self-employed earning above the Small Profits Threshold. Such individuals now build State Pension credits through the Class 4 contributions described above, treated as if Class 2 had been paid.

Voluntary Class 2 at GBP 3.45/week remains available for self-employed below the Small Profits Threshold who want to build State Pension credits. The annual cost GBP 179.40 buys a qualifying year toward the new State Pension. This is the cheapest way to fill State Pension gaps.

Class 2 is paid through Self-Assessment for the relevant tax year. The amount can be selected during the SA return - HMRC asks whether the taxpayer wants to pay voluntary Class 2.

Worked example: a part-time freelancer earning GBP 5,000 a year (below the Small Profits Threshold). Class 4 does not apply (profits below GBP 12,570). Voluntary Class 2 of GBP 179.40 a year buys a qualifying year toward the GBP 11,541 a year (2025/26 figure) full new State Pension. Over 35 years this builds the full pension at minimal cost.

Class 3 voluntary contributions

Class 3 voluntary contributions at GBP 17.45/week (GBP 907.40 a year for 2024/25; check current) are available to fill gaps in the NI record for those not paying any other class. The annual cost is around 5 times Class 2; it is the route for those who do not qualify for Class 2.

Class 3 can be paid for the prior 6 tax years under standard rules. Extended backdating to fill gaps from 2006 to 2018 is available until 5 April 2025 under transitional arrangements. After that date the standard 6-year window applies.

The cost-benefit calculation favours Class 3 in most cases where the buyer is close to State Pension Age and needs qualifying years. The full new State Pension is around GBP 11,541 a year; one qualifying year adds GBP 329 a year of pension (about 1/35th of the full amount). At GBP 907 cost, the payback is under 3 years of retirement.

Practical action: checking the State Pension forecast through the Personal Tax Account reveals any gaps. Where gaps exist, comparing Class 2 (if eligible) and Class 3 costs against the projected pension uplift identifies whether voluntary contributions make sense.

State Pension and the new flat-rate system

The new State Pension from 6 April 2016 requires 35 qualifying years for the full amount (GBP 230.25/week as of 2025/26, around GBP 11,973/year). 10 qualifying years gets a partial pension. Years can come from employment (Class 1 NI), self-employment (Class 2 or qualifying Class 4 since 2024), voluntary contributions (Class 2 or Class 3), or specific credits (carer's, child benefit recipient).

State Pension Age in 2026/27 is 66. Rising to 67 between April 2026 and March 2028 under the Pensions Act 2014 timetable. The gov.uk State Pension Age checker confirms the specific date for each individual.

For self-employed with intermittent or low income, voluntary Class 2 at GBP 179.40 a year is the cheapest route to qualifying years. For employed with NI gaps, Class 3 at GBP 907 a year is the route.

Edge case: certain credits accrue automatically. Child Benefit recipients with children under 12 get NI credits. Carer's Allowance recipients get credits. Universal Credit claimants with sufficient award levels get credits. Checking the NI record through the PTA reveals any gaps that may not have been credited automatically.

Self-employed credits and qualifying years

State Pension qualifying years for self-employed accrue automatically through Class 4 NI above the Lower Profits Limit (GBP 12,570) under the post-April 2024 rules. The Class 4 contributions count as if Class 2 had been paid, securing the qualifying year.

For self-employed below the Lower Profits Limit, voluntary Class 2 at GBP 3.45/week is the cheapest route to qualifying years. The annual cost of GBP 179.40 buys a year of qualifying contribution. This works for very-low-income self-employed who would otherwise have NI gaps.

Where the trader has gaps from prior years (low-income periods, periods working abroad, periods of caring responsibilities not auto-credited), checking the State Pension forecast through PTA reveals the impact. Filling gaps with voluntary Class 2 (if eligible) or Class 3 typically has fast payback.

Practical action: an annual check of the State Pension forecast around tax-year end identifies any gaps and prompts action. The transitional extended window for buying back years 2006-2018 closes 5 April 2025; standard 6-year window applies thereafter.

Class 4 NI on multiple sources

A self-employed person with multiple trading sources combines profits for Class 4 NI calculation. A sole trader running two distinct businesses (a freelance design service plus a side-eBay-trading activity) combines the profits and pays Class 4 on the total above the Lower Profits Limit.

Where the person is also employed (salary + self-employment combined), Class 1 NI is paid through PAYE on the salary and Class 4 on the self-employment profits separately. Combined NI exposure across both income types may exceed the UEL; deferment under regulations 91-95 SSCBA 1992 reduces the Class 4 rate on the high-income slice to 2%.

Deferment is applied for through HMRC form CA72A. The deferment certificate notifies HMRC that the trader is paying significant Class 1 elsewhere, and the Class 4 collection is reduced accordingly. Without deferment, over-payment can be reclaimed through SA at year-end.

Worked example: a teacher (employee on GBP 40,000) with a side tutoring business (GBP 15,000 self-employed profit). Combined earnings GBP 55,000, above the UEL of GBP 50,270. Class 1 NI on salary: 8% on most, 2% on top slice. Class 4 NI on side: 6% on most. Without deferment the trader over-pays around GBP 300 a year - claimable as refund through SA or avoided through CA72A deferment.

Frequently asked questions

How much Class 4 NI do I pay?

6% on profits between GBP 12,570 and GBP 50,270, then 2% above the UEL. A profit of GBP 30,000 attracts Class 4 of around GBP 1,046. A profit of GBP 50,000 attracts GBP 2,246. A profit of GBP 75,000 attracts GBP 2,757 (full 6% on the basic band plus 2% on the higher band). Collected through Self-Assessment along with income tax.

Do I still need to pay Class 2 NI?

Not compulsorily since April 2024 if profits exceed the Small Profits Threshold (GBP 6,725). State Pension credits accrue automatically through Class 4 above the Lower Profits Limit. Voluntary Class 2 at GBP 3.45/week remains available for self-employed below GBP 6,725 who want to build State Pension credits at the cheapest rate.

What's the cheapest way to fill State Pension gaps?

Voluntary Class 2 at GBP 3.45/week (GBP 179.40 a year) if eligible. Available to self-employed below the Small Profits Threshold. Class 3 at GBP 17.45/week (GBP 907.40 a year) is the alternative for those not eligible for Class 2. One qualifying year adds about GBP 329 of annual State Pension at retirement, so the payback is fast.

How many qualifying years do I need for State Pension?

35 for the full new State Pension under the post-April 2016 system. 10 for any State Pension. Years come from employment (Class 1 NI), self-employment (Class 2 or qualifying Class 4), voluntary contributions (Class 2 or Class 3), or specific credits (carer's, Child Benefit). Check your record through the Personal Tax Account.

Should I make voluntary NI contributions?

Often yes where there are gaps and retirement is approaching. The cost-benefit favours voluntary contributions in most cases: one qualifying year adds GBP 329 to annual State Pension; the cost is GBP 179 (Class 2) or GBP 907 (Class 3). Payback is under 3 years of retirement. Check the State Pension forecast through PTA first to confirm where contributions would actually increase entitlement.