Understanding National Insurance for the Self-Employed in the UK

National Insurance (NI) is a separate tax from income tax, but it functions similarly — it is collected by HMRC, calculated on your earnings, and entitles you to certain state benefits including the State Pension. For self-employed people, the NI system is different from employees and has changed significantly in recent years.

Class 2 NI: Abolished from April 2024

Prior to April 2024, self-employed people paid Class 2 National Insurance contributions at a flat weekly rate (£3.45 per week in 2023/24). This was abolished from 6 April 2024. However, the government also changed how self-employed people build State Pension entitlement — previously Class 2 was the mechanism. From 2024/25 onwards, paying Class 4 NI (see below) above the Small Profits Threshold automatically qualifies you for a Qualifying Year towards your State Pension and contributory benefits.

Class 4 NI Rates for 2025/26

Self-employed people with profits above £12,570 pay Class 4 NI as follows: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. These rates apply to the same profit figure used for income tax, calculated through your Self-Assessment tax return.

A Practical Example

If your self-employed profits are £35,000 in 2025/26: Class 4 NI is 6% on £22,430 (£35,000 minus £12,570), which equals £1,345.80. You also pay income tax: 20% on £22,430, which equals £4,486. Your total tax and NI bill on those profits is £5,831.80 before any additional income sources.

State Pension Entitlement

You need 35 Qualifying Years to receive the full new State Pension (£221.20 per week in 2025/26). A Qualifying Year is earned if your profits (or deemed earnings) are above the Small Profits Threshold (£6,725 for 2025/26). If your profits are below this threshold but you want to protect your State Pension record, you can make voluntary Class 3 NI contributions at £17.45 per week for 2025/26.

Partners in a Partnership

Partners in business partnerships pay NI as if self-employed on their share of partnership profits, not as employees. The same Class 4 rates apply.

Company Directors

Directors of limited companies are treated as employees for NI purposes on salary drawn from the company, paying employee and employer NI through PAYE. Dividends do not attract NI, which is why the salary/dividend split is tax-efficient for directors.

Payments Through Self-Assessment

Class 4 NI is collected through your Self-Assessment tax return alongside income tax. If your tax and NI bill exceeds £1,000 for the year, HMRC will typically require Payments on Account — advance payments of 50% in January and 50% in July to spread the liability.

What Class 4 NI Does Not Cover

Unlike employee NI, Class 4 contributions for 2025/26 do not provide access to Statutory Sick Pay, Statutory Maternity Pay, or Jobseeker's Allowance. Self-employed people must make their own arrangements for income protection through private insurance or savings.