Find out how to calculate class 4 national insurance, the tax-free thresholds available and the latest rates for the 2022-23 tax year.
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
What is Class 4 National Insurance?
National insurance is a type of UK tax. Workers from the age of 16 until retirement age are required to contribute a percentage of their income into a ‘pot’. This contribution 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 through their payslips. Those who are registered as self-employed pay class 2 and class 4 national insurance. If you are employed and self-employed you’ll pay all three types – class 1, class 2 and class 4 national insurance.
How to Calculate Class 4 NICs?
Sole traders pay Class 4 national insurance when their business profits go above a certain amount – known as the lower profits limit. For the tax year 2022-23 the lower earnings limit is £11,908. Once your income goes over the lower earnings limit you’ll pay NICs of 9.73% between the lower earnings limit and the upper earnings limit of £50,270. Any profits over the upper earnings limit will be subject to national insurance at 2.73%.
Here is a summary of the Class 4 NICs rates:
|Lower profits limit (no NICs below this threshold)||£11,909||£9,568||£9,500|
|Upper profits limit||£50,270||£50,270||£50,000|
|Rate between lower and upper profits limit||9.73%||9%||9%|
|Upper profits limit||£50,270||over £50,270||over £50,000|
|Rate above upper profits limit||2.73%||2%||2%|
Example of Calculating Self-Employed Class 4 National Insurance
You are self-employed for the full tax year 2022-23 and make a profit of £40,000. You’ll pay class 4 national insurance of £2,733.35 which is calculated as (£40,000 – £11,908) x 9.73%.
In addition you’ll also need to pay income tax and class 2 national insurance. Read this guide to self-employment taxes to find out more about how these taxes are calculated.