class 4 NICS

Guidance on Class 4 National Insurance Contributions (NICs) and Self-Employment

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Class 4 NICs are profit-based contributions for self-employed individuals (including sole traders, partners in business partnerships, or Lloyd’s underwriters). Unlike Class 2 NICs, which are flat-rate and primarily for benefit entitlement, Class 4 NICs are a percentage of your taxable profits and are collected alongside income tax through Self Assessment.

They do not directly build additional benefit entitlements but are mandatory where applicable. Below is a comprehensive summary based on HMRC guidance for the 2024-25 tax year (6 April 2024 to 5 April 2025). Note that rates were reduced from the previous year (2023-24), where the main rate was 9%, to simplify taxation for the self-employed as announced in the 2023 Autumn Statement and 2024 Spring Budget.

Key Rates and Thresholds for 2024-25

  • Main Rate: 6% on taxable profits between the Lower Profits Limit (LPL) and Upper Profits Limit (UPL).
  • Additional Rate: 2% on taxable profits above the UPL.
  • Lower Profits Limit (LPL): £12,570 (aligned with the Personal Allowance for income tax; no Class 4 due on profits below this).
  • Upper Profits Limit (UPL): £50,270 (aligned with the end of the basic rate income tax band).
  • No Liability Threshold: If profits are below £12,570, no Class 4 NICs are due. There is no equivalent to the Class 2 “small profits threshold” for opting in voluntarily—Class 4 is only payable on profits in the chargeable bands.

These thresholds and rates apply UK-wide (including Scotland). For 2025-26, the main rate remains 6%, with thresholds potentially adjusted for inflation, but this does not affect 2024-25 returns.

Maximum Contributions Test for National Insurance Contributions (NICs)

The Maximum Contributions Test (also known as the annual maximum for Class 4 NICs) is a mechanism to ensure that individuals who pay both Class 1 NICs (from employment) and Class 4 NICs (from self-employment) in the same tax year do not overpay compared to someone with equivalent earnings from a single source. It caps the total NICs liability based on Regulation 100 of the Social Security (Contributions) Regulations 2001. This test is particularly relevant if you have mixed income sources and is automatically applied during Self Assessment calculations (in Section 15 of the SA110 Tax Calculation Summary working sheet).

For the 2024-25 tax year, the test uses the reduced Class 4 main rate of 6% (down from 9% in 2023-24, as per the National Insurance Contributions (Reduction in Rates) Act 2024). There were no fundamental changes to the test’s structure for 2024-25 beyond updating the rates and thresholds. The key thresholds are:
ower Profits Limit (LPL): £12,570

Upper Profits Limit (UPL): £50,270

Class 4 main rate: 6% (on profits between LPL and UPL)

Class 4 additional rate: 2% (on profits above UPL)

Class 2 weekly rate: £3.45 (used as 53 weeks in the max test for conservatism, totaling £182.85)

When Does the Test Apply?

  • You must have paid Class 1 NICs (employee contributions) in the year.
  • Your self-employment profits exceed the LPL (£12,570), making you liable for Class 4 NICs.
  • If no Class 1 NICs are paid, the test does not apply, and you pay standard Class 4 NICs.
  • Exemptions from Class 4 (e.g., under 16 or over State Pension age at the start of the tax year) mean no test is needed.

The test compares your “normal” Class 4 liability against a capped maximum and takes the lower amount. HMRC calculates this for you if you submit your return, but you can estimate it using the steps below or the SA110 working sheet.

Step-by-Step Calculation Method for 2024-25

Use your taxable self-employment profits (after expenses, allowances, and adjustments, as reported in Box 31 of SA103S or Box 76 of SA103F). Include any Class 2 NICs paid or treated as paid.

  1. Calculate the main band: Subtract LPL from UPL (£50,270 – £12,570 = £37,700).
  2. Apply main rate: Multiply the result by the main Class 4 rate (£37,700 × 6% = £2,262).
  3. Add Class 2 element: Add 53 weeks of Class 2 NICs (£3.45 × 53 = £182.85). Total: £2,262 + £182.85 = £2,444.85.
  4. Subtract paid contributions: Subtract the total of any Class 2 NICs paid/credited + Class 1 NICs paid at the main employee primary rate (8% on earnings between Primary Threshold £12,570 and Upper Earnings Limit £50,270). This gives “Step 4 result.”
    • If Step 4 is negative, treat it as nil (Case 3) and proceed to Step 5 (main Class 4 = £0).
    • If Step 4 > £0 but ≤ your “normal” main Class 4 + Class 1 main + Class 2, this is your max main Class 4 (Case 2); proceed to Step 5.
    • If Step 4 > £0 and > that aggregate, this is your total max Class 4; stop here (Case 1). (“Normal” main Class 4 = [min(profits, UPL) – LPL] × 6%, if positive.)

If Case 1 applies, your max Class 4 NICs = Step 4. Otherwise, continue:

  1. Adjust for used band: Multiply Step 4 by (100 / main rate) = Step 4 × (100 / 6) ≈ Step 4 × 16.6667. This calculates the equivalent “band used” for the contributions already paid.
  2. Available main band: Subtract LPL from the lesser of UPL or your actual profits.
  3. Remaining band: Subtract Step 5 from Step 6. If negative, treat as nil.
  4. Additional on remaining band: Multiply Step 7 by the additional rate (2%).
  5. Additional on excess profits: Multiply profits above UPL by 2% (if profits > UPL; else £0).

Total max Class 4 NICs = Step 4 + Step 8 + Step 9.

Compare this max to your “normal” Class 4 liability ([profits – LPL] × 6% up to UPL, + 2% above) and pay the lower amount. Copy the final figure to Box A329 in the SA110 summary.

Example

Assume £60,000 self-employment profits, £20,000 employment earnings (all between PT and UEL, so Class 1 main paid: [£20,000 – £12,570] × 8% ≈ £594), and Class 2 treated as paid (£0 actual payment).

  • Normal Class 4: (£50,270 – £12,570) × 6% + (£60,000 – £50,270) × 2% = £2,262 + £194.60 = £2,456.60
  • Step 1: £37,700
  • Step 2: £2,262
  • Step 3: £2,262 + £182.85 = £2,444.85
  • Step 4: £2,444.85 – (£594 + £0) = £1,850.85
  • Since £1,850.85 > £0 and < normal aggregate (calculate similarly), Case 2.
  • Step 5: £1,850.85 × (100/6) ≈ £30,847.50
  • Step 6: min(£60,000, £50,270) – £12,570 = £37,700
  • Step 7: £37,700 – £30,847.50 = £6,852.50
  • Step 8: £6,852.50 × 2% = £137.05
  • Step 9: (£60,000 – £50,270) × 2% = £194.60
  • Max Class 4: £1,850.85 + £137.05 + £194.60 = £2,182.50
  • Pay the lower: £2,182.50 (saving ~£274 vs. normal).

This ensures your total NICs align with a single-source earner.

Additional Notes

Help: See HMRC’s NIM24175 manual for more or contact the Self Assessment helpline. If your return is complex, use a tax adviser. If profits are low or exempt, no Class 4 is due

53 vs. 52 Weeks: The test uses 53 weeks for Class 2 to provide a buffer, even though the year has 52 weeks.

Share Fishermen/Voluntary Class 2: Use £4.10/week for share fishermen. Voluntary Class 2 counts in Step 4.

If No Cap Needed: If max > normal Class 4, pay normal.

Reporting: Indicate adjustments in Self-Employment pages (e.g., Box 102 in full form). HMRC may notify you if deferment applies.