National Insurance for UK Sole Traders: Class 2 and Class 4

If you are self-employed in the UK, the rules around National Insurance changed significantly in April 2024 — and many sole traders still do not have a clear picture of what they actually owe. This guide covers what you need to know for 2025-26: which classes of National Insurance apply to you, what the current rates are, and how it all connects to your State Pension.

What National Insurance do sole traders pay?

As a sole trader, you are responsible for two types of National Insurance:

• Class 2 NI — a flat-rate contribution (historically £3.45/week). From April 2024, this is no longer compulsory for most sole traders. It still exists as a voluntary contribution.
• Class 4 NI — a percentage of your profits, calculated and paid through your Self Assessment return. This is still mandatory if your profits exceed the threshold.

Class 1 National Insurance — the kind deducted from employees' salaries — does not apply to sole traders for their self-employment income.

Class 2 National Insurance: abolished but not entirely gone

In April 2024, the government abolished compulsory Class 2 National Insurance for self-employed people. This was a meaningful saving — previously, most sole traders paid around £180/year in Class 2 contributions regardless of how much profit they made.

Here is what the change means in practice:

• Sole traders with profits above £12,570 automatically receive a qualifying year for their State Pension — no Class 2 payment required.
• Class 2 still exists but is now optional. You can pay £3.50/week voluntarily.
• Sole traders with profits between £6,845 (the Small Profits Threshold) and £12,570 do not automatically get a qualifying State Pension year. If that describes your situation, voluntary Class 2 contributions are worth considering — £182/year for a full qualifying year is relatively modest.

The practical upshot: if your profits are above £12,570, you do not need to do anything about Class 2. Your State Pension entitlement is protected automatically through your Class 4 contributions.

Class 4 National Insurance: rates and thresholds for 2025-26

Class 4 NI is the main National Insurance charge for sole traders. It is calculated as a percentage of your taxable profit and collected via Self Assessment.

The 2025-26 Class 4 rates are:

Profit band	Class 4 rate
Below £12,570	0%
£12,570 to £50,270	6%
Above £50,270	2%

To illustrate how this works in practice, here is the calculation for a sole trader with £35,000 profit:

Step	Calculation	Amount
Profit above lower threshold	£35,000 − £12,570	£22,430
Class 4 NI due	£22,430 × 6%	£1,345.80

These rates were reduced in 2024, down from 9% on the main band. At £35,000 profit, that represents a saving of approximately £335/year compared to the 2023-24 rates.

When and how sole traders pay National Insurance

Class 4 NI is calculated and paid as part of your Self Assessment tax return — you do not pay it separately to HMRC. The liability is included in your January and July payments.

The payment schedule works like this:

Payment	Due date	What it covers
First payment on account	31 January	50% of previous year's tax + NI bill
Second payment on account	31 July	Remaining 50%
Balancing payment	31 January (following year)	Difference if actual bill differs from estimates

Class 4 NI is subject to the same payment on account system as income tax. This is why your January bill is often larger than new sole traders expect — it covers both the previous year's final bill and an advance payment toward the current year.

Your accounting software will show you a running estimate of your combined tax and NI liability throughout the year. FreeAgent, Xero, and QuickBooks all produce running tax estimates — useful for knowing exactly what to set aside each month rather than guessing. If you are not yet using software that tracks this, the MTD software chooser can help you find the right fit.

National Insurance and your State Pension

This is the aspect of Class 2 abolition that most sole traders are still unclear about. Here is the before-and-after picture:

Before April 2024: you needed to pay Class 2 NI to qualify for a State Pension year as a self-employed person.

From April 2024: if your profits are above £12,570, you automatically receive a qualifying year — whether or not you make any NI payment. Your State Pension entitlement now builds up through Class 4 contributions alone.

You need 35 qualifying years of NI contributions for the full new State Pension (currently £230.25/week). If you have gaps in your NI record — years of low earnings, a career break, or periods before you became self-employed — it is worth checking your State Pension forecast through your Government Gateway account at gov.uk.

What if you are both employed and self-employed?

If you have both employment income and self-employment income:

• Class 1 NI is deducted from your employment salary by your employer via PAYE
• Class 4 NI is calculated on your self-employment profits via Self Assessment

Both apply independently. However, there is a mechanism to limit total Class 4 contributions if your Class 1 contributions from employment already reach the annual maximum. This most commonly affects people whose combined income exceeds £50,270. If your income falls into this bracket, reviewing this with an accountant is worthwhile — overpaying NI is not automatically refunded without a specific claim.

What about low profits: do you owe anything at all?

If your sole trader profits are below £6,845 (the Small Profits Threshold for 2025-26), you do not owe any National Insurance.

However, you also will not automatically receive a qualifying year for your State Pension. If you want to protect your pension record, voluntary Class 2 NI at £3.50/week — £182/year for a full qualifying year — is worth considering. For most people with low profits, this is a straightforward and affordable way to keep your State Pension building even in lower-income years.

Summary: what to do now

For the majority of UK sole traders in 2025-26, National Insurance looks like this:

• No Class 2 to pay if your profits are above £12,570 — your State Pension is protected automatically
• Class 4 at 6% on profits between £12,570 and £50,270, then 2% above that
• Paid via Self Assessment — included in your January and July bills, not separately
• Set aside 25–30% of income throughout the year to cover both income tax and Class 4 NI combined

If you are new to self-employment, the first step is making sure you have registered for Self Assessment with HMRC. If your profits are above £50,000, you will also need to comply with Making Tax Digital for Income Tax from April 2026 — your Class 4 NI and income tax will be reported quarterly through MTD-compatible software. For a practical system to ensure you are always ready for the January bill, the 25–30% rule for sole trader tax saving is a good place to start.