UK Class 4 National Insurance Explained: 2025/26

What is Class 4 National Insurance?

Class 4 National Insurance is the contribution self-employed sole traders and partners pay on the profits of their trade. Unlike Class 1 employee NI, which is deducted week by week through PAYE, Class 4 is calculated annually from the profit you declare on your Self Assessment return and is paid in lump sums by 31 January (with a payment on account each 31 July if you owe more than £1,000 in tax).

The base of Class 4 is your taxable trading profit: turnover minus allowable business expenses, capital allowances, and any losses brought forward. Investment income, rental income and dividends are not subject to Class 4 NI — only profits from a trade, profession or vocation carried on in the UK.

For most self-employed people, Class 4 is the headline NI charge. The old Class 2 weekly contribution, which used to be the gateway to the State Pension for the self-employed, was abolished as a compulsory tax in April 2024. Today, Class 4 alone does the work of both raising revenue and earning State Pension qualifying years for the vast majority of sole traders.

2025/26 Class 4 Rates and Thresholds

Class 4 NI uses a simple two-band structure tied to two profit limits: the Lower Profits Limit (LPL) of £12,570 — which is identical to the Income Tax Personal Allowance — and the Upper Profits Limit (UPL) of £50,270, which matches the start of higher-rate Income Tax.

The 6% main rate is a recent and significant reduction. As recently as 2022/23, the main Class 4 rate was 9%. Chancellor Jeremy Hunt (under Prime Minister Rishi Sunak) cut it to 8% from 6 April 2024 in the Spring Budget 2024 and then to 6% later that year, the lowest main rate of self-employed NI since the modern system began. The 2% upper rate, by contrast, has been unchanged for many years.

Both thresholds are frozen until at least April 2028 under the fiscal drag policy continued by successive governments, so even modest profit growth now pulls more of your profits into the 6% band each year.

Class 2 — Voluntary from April 2024

Until 5 April 2024, every self-employed person whose profits exceeded the Small Profits Threshold (£6,725) had to pay Class 2 NI — a flat charge of around £3.45 per week, or roughly £179 per year. Class 2 was historically the contribution that earned a qualifying year toward the State Pension, while Class 4 was treated as little more than a profits tax.

From 6 April 2024 the compulsory Class 2 charge was abolished. You no longer have to pay it, and you no longer see it on your Self Assessment calculation by default. State Pension entitlement instead now follows from Class 4 (or from a deemed credit if profits fall between the Small Profits Threshold of £6,725 and the Lower Profits Limit of £12,570 — HMRC treats this band as a qualifying year without any payment).

Class 2 still exists, but only as a voluntary contribution at the same flat rate of £3.45 per week (£179.40 per year for 2025/26). It is now used almost exclusively by those whose profits are below £6,725 and who want to fill a year in their NI record without paying the much more expensive Class 3 rate of £17.75 per week.

How Voluntary Class 2 Works in Practice

Three bands determine what happens to your State Pension record as a self-employed person in 2025/26:

• Profits under £6,725 (below the Small Profits Threshold): no automatic credit. To get a qualifying year, opt in to pay voluntary Class 2 at £3.45/week through your Self Assessment return. Without doing this, the year is a gap in your NI record.
• Profits £6,725 – £12,570: HMRC awards a free Class 2 credit automatically. The tax year counts as a qualifying year and you pay nothing — no Class 2 and no Class 4 (because profits are still below the £12,570 Lower Profits Limit).
• Profits over £12,570: you pay Class 4 NI at 6% on the slice above £12,570, and the year is automatically a qualifying year. No need to top up.

Note that the £12,570 figure is doing double duty: it is both the Income Tax Personal Allowance and the Class 4 Lower Profits Limit, but they are separatethresholds in law. Income Tax is calculated on total taxable income; Class 4 is calculated only on profits from self-employment. The two amounts can therefore be quite different on the same return.

Worked Example: £30,000 Profit

Consider Priya, a self-employed graphic designer with £30,000 of taxable trading profit in 2025/26 and no other income. Her combined Self Assessment bill breaks down like this:

Priya keeps £25,468.20 net for the year — an effective combined rate of just over 15%. Her tax year automatically counts as a State Pension qualifying year because her profits sit above the £12,570 Lower Profits Limit, so no voluntary Class 2 is needed.

Worked Example: £80,000 Profit

Now consider Daniel, a self-employed software consultant with £80,000 of trading profit. He is now into the higher-rate band for Income Tax and the upper-rate band for Class 4 NI. The Class 4 element splits across two slices:

• Main-rate slice: (£50,270 − £12,570) × 6% = £37,700 × 6% = £2,262.00
• Upper-rate slice: (£80,000 − £50,270) × 2% = £29,730 × 2% = £594.60
• Total Class 4 NI: £2,262.00 + £594.60 = £2,856.60

Daniel’s effective Class 4 rate across all his profits is about 3.6% — even though his marginal rate at the top is only 2%, because most of his profits sit in the 6% band. He would also owe Income Tax of approximately £19,432 (basic + higher rate), giving a combined bill of around £22,289 and a net of just under £57,711.

Class 1 vs Class 4 — Side by Side

A useful sanity check is to compare an employee and a self-employed person on the same gross figure. Employees pay Class 1 NI at 8% / 2% on the same thresholds, so the self-employed pay 2 percentage points less in the main band but the same in the upper band.

On £50,000 a self-employed person saves roughly £748 of NI compared to an employee. However, the comparison is not apples-to-apples: an employee also enjoys employer pension contributions, statutory sick pay, paid holiday and (often) life cover — none of which the self-employed receive automatically.

State Pension and Qualifying Years

The single biggest change in April 2024 — alongside the rate cut — was that Class 4 NI on its own now counts toward State Pension qualifying years. Before April 2024, only Class 2 contributions earned a qualifying year for the self-employed; Class 4 was a tax with no pension link. That created an absurd situation where high-earning self-employed people who paid thousands in Class 4 still risked missing a year of State Pension if they failed to tick the small Class 2 box.

Now the rule is straightforward: if your annual trading profits are at or above the Lower Profits Limit of £12,570, the year automatically counts as a qualifying year through Class 4. You need 35 qualifying years (across all classes and credits) to receive the full new State Pension, which is £230.25 per week in 2025/26.

You can check your NI record any time at gov.uk/check-national-insurance-record using your Government Gateway login. If you spot a gap, paying voluntary Class 2 (if eligible) or Class 3 is usually a very high-return investment in your future pension.

Reporting via Self Assessment

You do not calculate Class 4 NI manually on your return — HMRC does it automatically from the profit figures you enter on the SA103 self-employment pages (or the partnership SA104 pages, where each partner’s share of profit is charged separately). The figure flows straight onto your SA302 tax calculation.

Class 4 is collected together with Income Tax in two main events: the balancing payment on 31 January following the end of the tax year, plus two payments on account on 31 January and 31 July, each equal to half of last year’s combined Income Tax + Class 4 liability. Voluntary Class 2 (if you opt in) is added as a flat £179.40 lump sum into the same 31 January bill.

If you also have employment income, your employer will have already deducted Class 1 NI through PAYE. The two are accounted for separately, but an Annual Maximum cap prevents you from paying more than a defined ceiling across all NI classes combined. HMRC will normally refund any excess automatically when both returns are processed.

Loss Relief for Class 4

If your self-employed trade makes a loss in a tax year, you can claim several forms of loss relief against your Income Tax bill — sideways relief against employment income, carry-back against last year’s profits, and so on. However, for Class 4 NI purposes the rules are stricter.

A Class 4 loss can only be carried forward against future Class 4 profits from the same trade. You cannot use a trading loss to reduce Class 4 on a different trade, against employment income, against partnership income from elsewhere, or to claim a Class 4 refund of past years. The loss sits on your record and is automatically deducted from the next year’s Class 4 profit calculation until exhausted.

This asymmetry matters: it is quite common for someone to fully offset a trading loss against employment income for Income Tax, yet still carry the same loss forward for Class 4 NI in subsequent years. Always keep a separate Class 4 loss memorandum.

Official References

• gov.uk: Self-employed National Insurance rates
• HMRC manual NIM24000 et seq. — Class 4 NICs structure and computation
• HMRC manual NIM74250 — Class 2 voluntary contributions post-April 2024
• gov.uk: Check your National Insurance record
• gov.uk: Self Assessment tax returns