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:
|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 £50,000||over £50,000|
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
New Here? Learn how to set up the financial side of your business with these guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.