If you are self-employed and your profits clear £12,570, you pay Class 4 National Insurance at 6% up to £50,270 and 2% above. Here is exactly how it works, who pays, and how it is collected.
National Insurance for the self-employed used to come in two compulsory parts, and the rules changed materially from April 2024. For 2025/26, Class 4 National Insurance is the charge that does the heavy lifting: a percentage of your profits, collected through Self Assessment, that sits on top of your income tax. If you are a sole trader earning a reasonable living, Class 4 is almost certainly part of your annual bill, and understanding how the rates and limits work helps you avoid surprises in January.
The single most important thing to grasp is that Class 4 is charged on profits, not turnover. It is your income after allowable expenses and capital allowances that counts. A courier turning over £60,000 but with £15,000 of vehicle, fuel and equipment costs pays Class 4 on £45,000 of profit, not on the £60,000 they invoiced.
Class 4 National Insurance is structured around two thresholds, the Lower Profits Limit and the Upper Profits Limit, with a different rate on each side of the Upper Profits Limit.
| Profit band | Class 4 rate |
|---|---|
| Up to £12,570 (Lower Profits Limit) | 0% |
| £12,570 to £50,270 (Upper Profits Limit) | 6% |
| Above £50,270 | 2% |
The 6 per cent main rate is worth highlighting because it is relatively recent. For years the main Class 4 rate was 9 per cent; it was cut to 6 per cent from April 2024 and remains at 6 per cent for 2025/26. The 2 per cent rate above the Upper Profits Limit is unchanged. The structure deliberately mirrors employees' National Insurance, where a higher rate on a middle band gives way to a lower rate at the top.
Note that the £12,570 Lower Profits Limit is the same figure as the income tax Personal Allowance, but the two are separate systems that happen to share a number. The £50,270 Upper Profits Limit also coincides with the point where income tax moves into the higher rate, again by design rather than coincidence.
Class 4 is paid by self-employed sole traders and partners on profits from a trade, profession or vocation. You pay it if your annual profits exceed £12,570; below that, you pay nothing.
Certain people are outside the Class 4 net even if self-employed:
Income that is not trading profit does not attract Class 4 at all. Rental income from property, savings interest, dividends and employment earnings are dealt with under their own rules. A sole trader who also has a buy-to-let flat pays Class 4 on the trading profit but not on the rental profit.
There is no separate Class 4 bill and nothing extra to register for. When you complete your Self Assessment tax return, HMRC works out your trading profit, applies the Class 4 rates automatically, and adds the result to your income tax to produce a single liability, payable by 31 January after the end of the tax year.
If your total Self Assessment bill is large enough, you may also be asked to make payments on account: two instalments, in January and July, each equal to half of the previous year's combined income tax and Class 4 bill, paid towards the current year. The sole trader tax calculator lets you estimate your Class 4 and income tax together before you file, so the payment-on-account demand in your first profitable year does not catch you off guard.
Example 1: Profit in the main band. Liam is a self-employed electrician with a profit of £35,000 in 2025/26. His Class 4 is charged on the slice between £12,570 and £35,000, which is £22,430. At 6 per cent that is £1,345.80. He pays this alongside his income tax through Self Assessment.
Example 2: Profit above the Upper Profits Limit. Sofia, a freelance management consultant, makes £70,000 of profit. Her Class 4 has two layers: 6 per cent on the £37,700 between £12,570 and £50,270, which is £2,262; plus 2 per cent on the £19,730 above £50,270, which is £394.60. Her total Class 4 for the year is £2,656.60.
Example 3: Profit below the limit. Grace earns £10,000 of profit from a part-time crafts business. This is below the £12,570 Lower Profits Limit, so she pays no Class 4 at all. Because £10,000 is also above the £6,725 Small Profits Threshold, she still banks a qualifying year towards her State Pension for free, despite paying neither Class 4 nor income tax.
The most common confusion is the relationship between Class 4 and Class 2 National Insurance, and what each one actually buys you.
Class 4 National Insurance, on its own, builds no entitlement to the State Pension or contributory benefits. It is purely a tax on profits. The entitlement that matters for your pension comes from your profits exceeding the £6,725 Small Profits Threshold, which since April 2024 grants National Insurance credits for free. So a sole trader earning £35,000 is building a qualifying pension year because they have cleared £6,725, not because they paid £1,345.80 of Class 4.
Compulsory Class 2 National Insurance was abolished from April 2024. For 2025/26 it survives only as a voluntary contribution, relevant to people whose profits are below the £6,725 Small Profits Threshold and who want to protect their State Pension record. Above that threshold, you get the credit without paying Class 2, and you pay Class 4 on top once your profits clear £12,570. The two classes now operate on entirely separate parts of the profit scale.
It helps to see the full ladder:
| Profit marker | 2025/26 figure | What it triggers |
|---|---|---|
| Small Profits Threshold | £6,725 | Free State Pension credits begin; voluntary Class 2 available below |
| Lower Profits Limit | £12,570 | Class 4 begins at 6%; income tax Personal Allowance ends |
| Upper Profits Limit | £50,270 | Class 4 rate drops to 2% above this |
Reducing your profit through legitimate expenses and capital allowances reduces your Class 4 liability pound for pound within the 6 per cent band. This is one reason claiming capital allowances and keeping accurate expense records matters: every allowable deduction in the main band saves 6 per cent Class 4 as well as your marginal rate of income tax.
From April 2026, Making Tax Digital for Income Tax becomes mandatory for sole traders with qualifying income over £50,000, requiring four quarterly digital updates instead of a single annual return. Class 4 National Insurance is still finalised at the final declaration stage rather than calculated quarter by quarter, but the quarterly updates mean your profit, and therefore your Class 4 liability, is visible far earlier in the year. That makes it harder to be surprised by the size of a January bill.
The practical takeaway is to track profit, not just turnover, throughout the year. Class 4 follows profit, so keeping expenses and capital allowances recorded as you go gives you an accurate running estimate. The sole trader calculator brings income tax and Class 4 together so you can see your true combined liability at any point in the year.
Class 4 National Insurance is the part of the self-employed bill people forget to budget for, because it hides inside the same Self Assessment payment as income tax. Six per cent on the middle band adds up fast; the people who track profit through the year are never caught out by it.
TapTax connects to your bank, categorises expenses automatically, and submits quarterly updates to HMRC. Free plan, no card required.
