How to Calculate Class 4 NICs

You pay Class 4 NICs when you are self-employed earning over a certain threshold. In this guide, I show you what those thresholds are and how to calculate class 4 NICs payable.

What is Class 4 National Insurance

National insurance is a type of tax paid in the UK, where workers pay into a ‘pot’ which then entitles them to certain state benefits such as the use of the NHS, the state pension and maternity allowance.

People who are employed in a job pay Class 1, but if you are self-employed you’ll need to pay Class 4 national insurance (the equivalent ‘tax’). The amount you pay depends on your earnings.

How to Calculate Class 4 NICs

You’ll pay self-employed Class 4 national insurance when your business profits reach a certain level (known as the small profits threshold).

The current Class 4 NIC rates are:

 2020/20212019/2020
Small profits threshold – no NICs below this threshold£9,501£8,632
Class 4 National Insurance 9%£50,000£50,000
Class 4 National Insurance 2%over £50,000over £50,000
How to Calculate Class 4 NICs

Example

You are self-employed and during the tax year 2020/2021 you make a profit of £40,000.

You’re profits exceed the small profits threshold of £9,501. The amount of Class 4 NICs you’ll pay is £2,744.91 which is calculated as (£40,000 – £9,501) x 9%.

You’ll also need to pay income tax on your earnings. Again, the amount you’ll pay will be based on the amount of profit you have made in your business.

Read the full guide to Tax and National Insurance When You’re Self-Employed


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Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.