National Insurance for the Self-Employed: Class 2 and Class 4 Explained

Written by James

When you work for an employer, National Insurance is handled automatically through payroll. When you’re self-employed, it works quite differently — and understanding the two classes of NI contributions that apply to you is an important part of managing your finances.

Two Types of National Insurance for Sole Traders

As a self-employed sole trader, you may be liable for two types of National Insurance:

• Class 2 National Insurance — a flat weekly contribution
• Class 4 National Insurance — a percentage of your profits above a certain threshold

Both are reported and paid through your annual Self Assessment tax return.

Class 2 National Insurance

Class 2 NI is a flat-rate contribution paid by self-employed individuals. For the 2026/27 tax year, the rate is £3.65 per week. You pay Class 2 NI if your profits are at or above the Small Profits Threshold of £7105.

Despite being a small amount, Class 2 contributions matter — they count towards your State Pension and certain other benefits. If your profits fall below the threshold, you can make voluntary Class 2 contributions to protect your entitlement to these benefits.

Class 2 NI is collected as part of your Self Assessment bill, so you don’t need to pay it separately — it’s calculated automatically.

Class 4 National Insurance

Class 4 NI is profit-based and works more like Income Tax. For 2026/27:

• 6% on profits between £12,570 and £50,270 (see HMRC’s current NI rates for the self-employed)
• 2% on profits above £50,270

Like Class 2, this is calculated and paid through Self Assessment. There’s nothing to set up separately — HMRC works it out based on the profit you declare.

An Example

Let’s say your taxable profit for 2025/26 is £32,000:

• Class 2: £3.65 × 52 = £189.80
• Class 4: 6% × (£32,000 − £12,570) = 6% × £19,430 = £1,465.80
• Total NI: £1,655.60

This is in addition to any Income Tax you owe — so it’s essential to factor NI into your tax planning and set aside enough throughout the year.

When Do You Pay?

Both Class 2 and Class 4 NI are paid as part of your Self Assessment bill, which is due by 31 January following the end of the tax year. If your bill is large enough, you may also be required to make payments on account in July.

What About Class 1 NI?

Class 1 NI is what employees and employers pay. As a sole trader, you don’t pay Class 1 — unless you also have a separate job as an employee alongside your self-employment, in which case both sets of contributions may apply and HMRC will ensure you’re not overpaying.

Voluntary NI Contributions

If your profits are below the Small Profits Threshold — or you’ve had a gap in your NI record — you can make voluntary Class 2 contributions to keep your State Pension entitlement intact. This is worth considering if you’ve had a low-income year or took time out of work.

Need Help with Your Self Assessment?

PBAS prepares Self Assessment returns for sole traders across Scotland, making sure your NI contributions and tax liability are calculated correctly. If you’d rather not deal with the paperwork yourself, we’re here to help.

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Need Help with This?

PBAS provides affordable bookkeeping and accountancy services for sole traders and small businesses across East Lothian, Edinburgh, Midlothian and throughout Scotland. If you’d like a hand with your accounts, self assessment or any tax matter, get in touch for a free, no-obligation chat.

• Sole Traders Start Here
• How to Register as Self-Employed with HMRC
• Self Assessment Tax Returns

This article provides general guidance only. For specific advice on your circumstances, consult HMRC directly via the GOV.UK National Insurance for the self-employed or speak to a qualified bookkeeper.