What Is Class 2 and Class 4 National Insurance?

Self-employed workers pay Class 2 and Class 4 National Insurance through Self Assessment. Find out how they work, how much you pay, and what benefits they cover.

Introduction

If you are self-employed in the UK, you pay National Insurance contributions (NICs) differently from someone employed under PAYE. Instead of having contributions automatically deducted from your wages, you are responsible for paying Class 2 and Class 4 National Insurance through the Self Assessment system.

Understanding these two types of contributions is essential because they affect your entitlement to state benefits such as the State Pension, maternity allowance, and other government support. This article explains what Class 2 and Class 4 National Insurance are, how they work, and when you need to pay them.

What Is National Insurance?

National Insurance is a tax paid by workers and employers that funds state benefits and public services. Employees pay it through their wages, while self-employed individuals pay it as part of their annual Self Assessment tax return.

For the self-employed, there are two types of contributions:

  • Class 2 NICs a flat weekly rate based on your profits.

  • Class 4 NICs a percentage of your annual profits above certain thresholds.

Both contributions go towards your National Insurance record, which determines your eligibility for certain benefits.

What Are Class 2 National Insurance Contributions?

Class 2 NICs are a flat-rate payment made by self-employed workers to maintain their entitlement to basic state benefits such as the State Pension and maternity allowance.

For the 2024 25 tax year:

  • The Class 2 rate is £3.45 per week.

  • You pay it if your profits are £12,570 or more per year.

If your profits are below this threshold, you do not have to pay Class 2 NICs, but you can choose to pay them voluntarily to protect your National Insurance record.

Example:
Jane runs a small online business and makes £15,000 in profit for the tax year. Because her profits are above £12,570, she must pay Class 2 contributions at £3.45 per week, totalling about £179 for the year.

What Are Class 4 National Insurance Contributions?

Class 4 NICs are based on a percentage of your self-employed profits. Unlike Class 2, they are linked directly to how much you earn.

For the 2024 25 tax year:

  • You pay 6% on profits between £12,570 and £50,270.

  • You pay 2% on profits above £50,270.

Class 4 contributions do not count towards benefits such as the State Pension, but they are still a mandatory part of your tax obligations if you exceed the income threshold.

Example:
Tom is a self-employed plumber with annual profits of £40,000. His Class 4 NIC calculation looks like this:

  • Profits between £12,570 and £40,000 = £27,430

  • £27,430 × 6% = £1,645.80 in Class 4 NICs

He also pays the Class 2 flat-rate contributions of £3.45 per week, adding around £179.40, making his total National Insurance bill approximately £1,825 for the year.

How and When to Pay Class 2 and Class 4 NICs

Self-employed workers pay both Class 2 and Class 4 National Insurance through their Self Assessment tax return each year.

The process is as follows:

  1. Submit your Self Assessment return online by 31 January after the end of the tax year.

  2. HMRC calculates your tax and National Insurance based on your declared profits.

  3. You pay both Income Tax and NICs together by the same deadline.

If your tax bill exceeds £1,000, you may also have to make payments on account for the next tax year, which includes estimated National Insurance.

Voluntary National Insurance Contributions

If your profits are below the Small Profits Threshold (£6,725 for 2024 25), you will not automatically pay Class 2 NICs. However, it may be worth paying them voluntarily to ensure you continue building your entitlement to state benefits.

Paying voluntary Class 2 contributions can help you qualify for:

  • The full State Pension.

  • Maternity allowance.

  • Bereavement benefits.

You can check your National Insurance record on the government website to see if you have any gaps and decide whether voluntary contributions are worthwhile.

The Difference Between Class 2 and Class 4 National Insurance

Feature Class 2 NICs Class 4 NICs

Based on Flat weekly rate Percentage of annual profits

2024 25 rate £3.45 per week 6% on profits between £12,570 and £50,270, 2% above that

Threshold Pay if profits exceed £12,570 Pay if profits exceed £12,570

Counts towards State Pension Yes No

Paid through Self Assessment Self Assessment

Both types of contributions work together to ensure self-employed individuals pay their fair share of National Insurance while maintaining benefit entitlements.

What Happens If You Do Not Pay

If you fail to pay your Class 2 or Class 4 National Insurance contributions, HMRC may:

  • Add interest and late payment penalties to your bill.

  • Mark gaps in your National Insurance record, affecting your State Pension entitlement.

If you are struggling to pay, contact HMRC as soon as possible. They may allow you to set up a payment plan or adjust your payments on account.

Planning Ahead for National Insurance

Since both Class 2 and Class 4 NICs are due annually, it is a good idea to set aside money for them throughout the year. A practical approach is to save a percentage of your income each month for tax and National Insurance, typically between 25% and 30% depending on your profit level.

Accounting software or a qualified accountant can help you forecast your liability accurately and ensure you are saving enough.

Example Scenario

Lisa is a self-employed graphic designer who earns £30,000 per year in profit. Her accountant calculates:

  • Class 2 NICs: £3.45 per week (£179 for the year).

  • Class 4 NICs: 6% of £17,430 (the portion above £12,570) = £1,045.80.

Lisa’s total National Insurance bill for the year is £1,224.80. Her accountant advises her to set aside £102 each month to cover it, avoiding a large payment at year-end.

The Role of an Accountant

An accountant can help you manage your National Insurance contributions by:

  • Calculating Class 2 and Class 4 NICs accurately.

  • Advising whether to make voluntary contributions.

  • Helping you plan savings for future tax and NIC payments.

  • Ensuring your Self Assessment is filed correctly and on time.

With professional advice, you can avoid mistakes and keep your finances organised.

Conclusion

Class 2 and Class 4 National Insurance contributions are essential for self-employed workers in the UK. Class 2 helps you maintain eligibility for state benefits like the State Pension, while Class 4 is a profit-based contribution towards public services.

Both are paid through your annual Self Assessment, and understanding how they work allows you to plan ahead, avoid penalties, and stay on top of your financial obligations. Keeping good records and, where possible, working with an accountant ensures that your National Insurance is calculated correctly and paid on time.