How to calculate the class 4 NIC liability for self-employed? The self-employed pay two classes of National Insurance contributions – Class 2 and Class 4.
What is Class 2 National Insurance Contribution:
Class 2 contributions apply if your profits exceed the small profits threshold. For 2023/24, this is a flat rate of £3.45 per week. Class 4 contributions are based on profits from self-employment and operate as a tax, they don’t confer any benefit/pension.
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Nature Of Class 4 Contributions, What Is Class 4 N.I Contribution.
Class 4 National Insurance contributions are payable by self-employ earners 16 or over of age and below state pension age.
The liability triggers once profits from self-employment reach the lower profits limit, set at £12,570 for 2023/24. This aligns with the primary and secondary thresholds for Class 1 National Insurance purposes.
Class 4 contributions are payable at the main rate on profits between the lower profits limit and the upper profits limit and at the additional rate on profits over the upper profits limit.
For 2023/24, the upper profits limit is set at £50,270, aligning with both the upper earnings limit for Class 1 National Insurance purposes and the rate at which higher rate tax becomes payable.
For the tax year 2024 to 2025, you’ll pay:
- 6% on profits of £12,570 up to £50,270
- 2% on profits over £50,270
Example 1
John, a self-employed personal trainer, has profits of £7,500 in 2023/24.
- Profits are below the lower profits limit of £12,570, so no Class 4 NICs are owed.
- However, John must pay Class 2 NICs at £3.45 per week since his profits exceed the small profits threshold.
Example 2
Jane, a self-employed interior designer, has profits of £32,000 in 2023/24.
Calculate profits exceeding the lower limit:
- £32,000 – £12,570 = £19,430
Apply the 9% main rate on these profits:
- 9% of £19,430 = £1,748.70
- Jane’s Class 4 NIC liability is £1,748.70.
- She also owes Class 2 NICs at £3.45 per week.
Example 3
Jackie, a self-employed accountant, has profits of £77,000 in 2023/24.
Calculate profits up to the upper limit at the 9% rate:
- £50,270 – £12,570 = £37,700
- 9% of £37,700 = £3,393
Calculate profits above the upper limit at the 2% rate:
- £77,000 – £50,270 = £26,730
- 2% of £26,730 = £534.60
- Jackie’s Class 4 NIC liability is £3,927.60 (£3,393 + £534.60).
- She also owes Class 2 NICs at £3.45 per week.
Paying the Class 4 National Insurance Liability
Class 4 National Insurance contributions are payable with tax under the self-assessment system. The due date for paying liability is 31 January after the end of the tax year to which it relates – so Class 4 National Insurance contributions for 2013/24 must be paid by 31 January 2025.
Unlike Class 2 contributions, Class 4 contributions are taken into account in computing payments on account. Payments on the account must be made where the previous year’s tax and Class 4 National Insurance liability was £1,000 or more unless at least 80% of the tax due for that year is collected at source.
Each payment on account is 50% of the previous year’s liability. These payments are due on 31 January and 31 July within the tax year.
Additional note: SSCBA 1992, ss. 15 – 18.
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