The £6,725 Small Profits Threshold decides whether you build National Insurance credits towards your State Pension, and whether you can pay voluntary Class 2. Here is what changed and what it means for you.
For decades the Small Profits Threshold was the line that decided whether a self-employed person had to pay Class 2 National Insurance. The rules changed significantly from April 2024, and for 2025/26 the threshold plays a subtly different but still important role: it determines whether you build credits towards your State Pension for free, and whether you can top up your record cheaply with voluntary contributions. Understanding it is one of the most overlooked pieces of self-employed financial planning.
The reason this matters is the State Pension. To get the full new State Pension you need around 35 qualifying years of National Insurance, and at least 10 to get anything at all. For employees, qualifying years come automatically through payroll. For the self-employed, the Small Profits Threshold is the mechanism that decides whether a year counts.
For 2025/26 the Small Profits Threshold is £6,725. This sits below two other key National Insurance markers for the self-employed:
| Marker | 2025/26 figure | What it triggers |
|---|---|---|
| Small Profits Threshold | £6,725 | NI credits begin (no Class 2 due) |
| Lower Profits Limit | £12,570 | Class 4 NI starts at 6% |
| Upper Profits Limit | £50,270 | Class 4 rate drops to 2% above this |
These three figures define the self-employed National Insurance landscape. The Small Profits Threshold is the lowest, and it is the one most people misunderstand.
Until the 2023/24 tax year, sole traders with profits above the Small Profits Threshold had to pay Class 2 National Insurance, a flat weekly charge. From 2024/25 onwards, the government removed that requirement. Now, if your profits are above the Small Profits Threshold:
In effect, compulsory Class 2 was abolished for most sole traders, but the National Insurance credit was preserved. This is genuinely good news: above £6,725 of profit you get the pension benefit for free. For a fuller breakdown of the rates and the voluntary option, see the guide to Class 2 National Insurance.
If your annual self-employment profit is above £6,725, you automatically build a qualifying year, with nothing to pay. You do not need to do anything to claim this; it flows from your Self Assessment return.
If your profit is below £6,725, the year does not automatically count towards your State Pension. You then have a choice:
For most people, the voluntary Class 2 option is excellent value. Buying a qualifying year for around £182 can add roughly £330 a year to your State Pension for life once you reach pension age, so it usually pays for itself within the first year of retirement.
The people most at risk of an underfunded State Pension are those who have several years of genuinely low self-employment profits: new businesses finding their feet, carers working part-time, or people winding down towards retirement. If those years fall below £6,725 and no voluntary contribution is made, the gaps can quietly erode the eventual pension. Checking each year whether to pay voluntary Class 2 is a small piece of admin with a large long-term payoff.
You do not claim the Small Profits Threshold; it operates automatically through your Self Assessment return. When you file, HMRC works out your profit and determines whether you are above the threshold (credits granted, nothing to pay) or below it (option to pay voluntary Class 2).
To pay voluntary Class 2 when your profits are below the threshold, you tick the relevant box in the Self Assessment return and the amount is added to your bill, payable by 31 January. If you have already filed and want to add voluntary contributions, you can usually amend your return or contact HMRC directly. The sole trader tax calculator can help you see where your profit lands against the threshold before you file.
Example 1: Profit above the threshold. Tomas runs a small joinery business with profit of £9,000 in 2025/26. This is above the £6,725 Small Profits Threshold but below the £12,570 Lower Profits Limit. He pays no Class 2 and no Class 4 National Insurance, yet he still earns a qualifying year towards his State Pension. He also pays no income tax because £9,000 is below the £12,570 personal allowance. A year of pension entitlement, entirely free.
Example 2: Profit below the threshold. Aisha is building a freelance illustration business and makes just £4,200 of profit in her first year, below the Small Profits Threshold. The year will not count towards her State Pension automatically. She chooses to pay voluntary Class 2 of £182 to secure the qualifying year, judging it a worthwhile investment in her future pension while her business grows.
Example 3: Profit above the Lower Profits Limit. Dev earns £30,000 of profit. He is well above the Small Profits Threshold, so he builds his pension year for free, and above the £12,570 Lower Profits Limit, so he pays Class 4 National Insurance at 6% on the £17,430 between £12,570 and £30,000, which is £1,045.80, alongside his income tax.
The Small Profits Threshold sits within a chain of self-employed thresholds. Below it, you can pay voluntary Class 2. Above it, you build credits for free. Above the £12,570 Lower Profits Limit, Class 4 National Insurance begins at 6%, rising income being charged until the £50,270 Upper Profits Limit, beyond which the rate falls to 2%.
It is important not to confuse the National Insurance thresholds with the income tax system. The £12,570 figure happens to be both the Lower Profits Limit for Class 4 and the income tax personal allowance, but they are conceptually separate. You can owe National Insurance credits status under one set of rules and income tax under another. A sole trader with £9,000 of profit pays neither income tax nor any National Insurance, yet still banks a State Pension year, an unusually favourable combination created by the abolition of compulsory Class 2.
Every year when you prepare your Self Assessment, run through this quick check:
This five-minute review can prevent the kind of pension gap that is expensive and inconvenient to fix decades later.
The abolition of compulsory Class 2 means that for most sole traders, a year of State Pension entitlement above £6,725 of profit now costs nothing at all. It is one of the quiet wins of the modern self-employed tax system.
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