The short version
As a sole trader you pay Class 4 National Insurance on your profits — 6% between £12,570 and £50,270, and 2% on anything above £50,270 — and it's collected alongside your income tax through Self Assessment. That's most of the story. The wrinkle is Class 2, which used to be a separate flat weekly charge and has effectively been abolished — but still quietly matters for your State Pension. The full guide explains why, and how to make sure you're not losing pension years by accident.
Class 4: the main event
Class 4 NI is a percentage of your profits, on top of income tax:
- Nothing on the first £12,570 of profit.
- 6% on profit between £12,570 and £50,270.
- 2% on profit above £50,270.
So a sole trader with £45,000 profit pays roughly £1,946 in Class 4 NI (6% of £32,430) — a real chunk, which is why it's factored into the "set aside ~20% for tax" rule of thumb (the "tax" pot covers income tax and Class 4 NI together).
Class 2: gone, but not forgotten
Class 2 used to be a small flat weekly NI charge (a few pounds a week). It has effectively been abolished as a mandatory payment — you no longer pay it. But here's the important part: Class 2 was what built your entitlement to the State Pension and certain benefits. So the rules now say:
- If your profits are above the small profits threshold (around £6,845), you're treated as having paid Class 2 — you get the qualifying year for your State Pension free, without paying.
- If your profits are below that threshold, you don't automatically get the credit — but you can pay voluntary Class 2 contributions (cheap) to protect your record. This matters for low-profit years, part-time self-employment, or start-up years.
Don't lose pension years by accident The State Pension needs about 35 qualifying years for the full amount. If you have a low-profit year below the small-profits threshold and do nothing, that year may not count — and voluntary Class 2 to fix it is inexpensive. It's exactly the kind of thing that's invisible until you check your State Pension forecast years later. We flag it when your profits fall into that zone.
How it's paid
You don't pay NI separately — Class 4 is calculated on your Self Assessment return and paid with your income tax on 31 January (and via payments on account). One return, one payment, both taxes. If you're also employed, you'll have paid Class 1 NI through PAYE too, and there's an annual maximum so you don't overpay across both.
The takeaway
For most sole traders, NI is simply "6% on profits in the main band, collected with my tax, and my pension year is covered automatically." The one thing worth watching is low-profit years, where a small voluntary payment protects your pension. We handle the calculation and flag the pension question as part of every package. Get started.
