National Insurance Contributions

Guidance on Class 1A National Insurance Contributions for Employment Income

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Class 1A National Insurance Contributions (NIC) are payable solely by employers, not employees, and apply only to certain taxable benefits in kind provided to employees through direct employment. For the 2025/26 tax year (6 April 2025 to 5 April 2026), focusing exclusively on direct employment income-related benefits (e.g., company cars, fuel, private medical insurance, accommodation, but excluding cash payments or non-benefit income), an employer is liable if the following criteria are met:

  • Provision of Taxable Benefits: The employer must provide benefits that are taxable on the employee under Income Tax rules, such as most expenses and benefits not exempted (e.g., non-cash vouchers, credit tokens, living accommodation, or assets transferred). Liability does not apply to benefits that are exempt (e.g., certain pensions advice or trivial benefits under £50).
  • Employment Relationship: The benefits must be provided to an employee (including directors) or their family/household due to the employment. This excludes self-employed individuals or non-employees.
  • No Employee Contribution Required: Employees do not pay or report Class 1A NIC; it’s an employer obligation calculated on the cash equivalent value of the benefit (as reported on form P11D).
  • UK Tax Jurisdiction: The employer must be UK-based or have UK employees, with benefits treated as UK-sourced. Special rules apply for cross-border work.

If these criteria are satisfied, the employer pays Class 1A NIC at a flat rate of 15% on the taxable value of the benefits. Payment is due annually by 22 July 2026 (electronic) or 19 July 2026 (postal) following the tax year, via form P11D(b). Employees may see these benefits affect their Income Tax via PAYE or Self-Assessment, but not NIC directly.

Class 1A National Insurance Contributions (NIC) are payable solely by employers, not employees, and apply only to certain taxable benefits in kind provided to employees through direct employment. For the 2025/26 tax year (6 April 2025 to 5 April 2026), focusing exclusively on direct employment income-related benefits (e.g., company cars, fuel, private medical insurance, accommodation, but excluding cash payments or non-benefit income), an employer is liable if the following criteria are met:

  • Provision of Taxable Benefits: The employer must provide benefits that are taxable on the employee under Income Tax rules, such as most expenses and benefits not exempted (e.g., non-cash vouchers, credit tokens, living accommodation, or assets transferred). Liability does not apply to benefits that are exempt (e.g., certain pensions advice or trivial benefits under £50).
  • Employment Relationship: The benefits must be provided to an employee (including directors) or their family/household due to the employment. This excludes self-employed individuals or non-employees.
  • No Employee Contribution Required: Employees do not pay or report Class 1A NIC; it’s an employer obligation calculated on the cash equivalent value of the benefit (as reported on form P11D).
  • UK Tax Jurisdiction: The employer must be UK-based or have UK employees, with benefits treated as UK-sourced. Special rules apply for cross-border work.

If these criteria are satisfied, the employer pays Class 1A NIC at a flat rate of 15% on the taxable value of the benefits. Payment is due annually by 22 July 2026 (electronic) or 19 July 2026 (postal) following the tax year, via form P11D(b). Employees may see these benefits affect their Income Tax via PAYE or Self-Assessment, but not NIC directly.

Information to Enter in Each Relevant Box on the Tax Return

Employees do not report Class 1A NIC directly on their Self-Assessment tax return, as it’s an employer payment. Instead, the SA102 (Employment supplementary page) requires details of benefits that trigger Class 1A, if not payrolled or adjusted via PAYE. Use a separate SA102 per employment. Below are the relevant boxes on SA102 where benefit information must be entered (other boxes like pay/tax are for core income; Class 1A is not input but derived from these):

  • Box 9: Company cars and vans – Enter the cash equivalent value (from P11D box 9, if not payrolled). This attracts Class 1A at 15% for the employer.
  • Box 10: Fuel for company cars and vans – Enter the cash equivalent or amount foregone (from P11D box 10, if not payrolled).
  • Box 11: Private medical and dental insurance – Enter the value (from P11D box 11, if not payrolled).
  • Box 12: Vouchers, credit cards and excess mileage allowance – Enter values (from P11D box 12, if not payrolled; e.g., non-exempt vouchers).
  • Box 13: Goods and other assets provided by your employer – Enter market value (from P11D box 13, if not payrolled).
  • Box 14: Accommodation provided by your employer – Enter cash equivalent (from P11D box 14, if not payrolled).
  • Box 15: Other benefits (including interest-free and low interest loans) – Enter total value (from P11D box 15, if not payrolled; e.g., loans over £10,000).
  • Box 16: Expenses payments received and balancing charges – Enter amounts (from P11D box 16, if not payrolled; may include reimbursed expenses treated as benefits).

HMRC calculates Income Tax on these for the employee and uses P11D data for employer Class 1A. If payrolled, these boxes may be zero or adjusted.

Checklist of Documents, Evidences, Receipts, Invoices, and Forms

Based solely on the referenced HMRC documents for employment income in Self-Assessment:

  • P45 (‘Details of employee leaving work’)
  • P60 (‘End of Year Certificate’)
  • P11D (‘Expenses and benefits’)

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.

Guidance on self-employment and Class 2 National Insurance Contributions (NICs)

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Class 2 NICs are flat-rate contributions primarily for self-employed people (including sole traders, partners in a business partnership, or Lloyd’s underwriters). They help build entitlement to certain contributory benefits, such as the State Pension, Maternity Allowance, and Bereavement Support Payment. Below is a comprehensive summary based on HMRC guidance for the 2024-25 tax year (6 April 2024 to 5 April 2025). Note that significant reforms took effect from April 2024: Class 2 NICs are no longer mandatory for most self-employed individuals but can be credited or paid voluntarily to protect your National Insurance record.

Key Rates and Thresholds for 2024-25

  • Rate: £3.45 per week (flat rate, not profit-based).
    • This equates to approximately £179.40 for a full tax year (based on 52 weeks; calculations may occasionally reference 53 weeks in maximum contribution tests, but standard is 52).
  • Small Profits Threshold (SPT): £6,725.
    • If your taxable profits (after allowable expenses and deductions) are £6,725 or more: Class 2 NICs are treated as paid automatically. You do not need to pay anything, but you still receive a qualifying year for benefits like the State Pension.
    • If your taxable profits are below £6,725 (or you make a loss): No Class 2 NICs are required, but you can choose to pay them voluntarily to gain a qualifying year and protect your entitlement to benefits.
  • No Upper Threshold: Unlike Class 4 NICs, Class 2 is not scaled by higher profits—it’s either credited (no payment) or voluntary (flat rate).

These thresholds and rates apply UK-wide (including Scotland). For 2025-26, the rate increases to £3.50 per week and the threshold to £6,845, but this does not affect 2024-25 returns.

Eligibility and Who Must/Should Pay

  • Mandatory Payment: None for 2024-25—reforms abolished compulsory Class 2 payments. If profits are £6,725 or above, contributions are credited without payment.
  • Voluntary Payment: Recommended if profits are below £6,725 and you want to maintain your National Insurance record for benefits. This is particularly important if you’re close to State Pension age or rely on contributory benefits. You must be registered as self-employed with HMRC for voluntary payments to count (even if not filing a tax return).
  • Special Cases:
    • Employed and Self-Employed: If you pay Class 1 NICs through employment, you may pay reduced or no Class 2, depending on your total contributions. However, you still need to pay Class 2 during temporary self-employment breaks if you intend to resume (e.g., writers’ block or seasonal work).
    • Foster Carers/Shared Lives Carers: Treated as self-employed; same rules apply based on qualifying care receipts.
    • Rent-a-Room Scheme Participants: If using this for income from letting furnished rooms, it counts as self-employment; apply thresholds to profits.
    • Overseas or Remittance Basis Users: If all business is abroad and on remittance basis, limited reporting; otherwise, full rules apply.
    • Exemptions/Exclusions: Certain groups (e.g., examiners, ministers of religion without salary, or property investors without active trading) may pay voluntary Class 2 outside Self Assessment. You cannot pay if under 16 or over State Pension age at the tax year start.

If you’re not eligible for crediting and don’t pay voluntarily, you won’t get a qualifying year, which could affect your State Pension (you need 35 qualifying years for the full new State Pension).

How Class 2 NICs Are Calculated and Paid

  • Calculation:
    • In your Self Assessment tax return (SA103S short form for turnover <£90,000 or SA103F full form otherwise), indicate voluntary payment by putting an ‘X’ in:
      • Box 36 (short form).
      • Box 100 (full form).
    • This triggers inclusion in your tax calculation (SA110). The flat rate (£3.45/week) is multiplied by the number of weeks in the tax year (typically 52, totaling ~£179.40).
    • If profits >=£6,725, no amount is due (shown as £0 in calculations).
    • Maximum Contributions Test: If your total NICs (Class 1 from employment + Class 2 + Class 4) exceed a cap (e.g., ~£5,000 for 2024-25, based on 53 weeks of maximum Class 1/4 rates), you may get a refund or reduction. This is rare but calculated in SA110 Section 15.
  • Payment:
    • Paid via Self Assessment alongside income tax and Class 4 NICs (due by 31 January 2026 for online filing).
    • If not filing a return (e.g., profits <=£1,000 under trading income allowance and no other reasons to file), contact HMRC directly to pay voluntarily.
    • Deadline Note: You cannot pay voluntary Class 2 through Self Assessment after 31 January 2026. Late payments may require direct arrangement with HMRC.
    • Registration: Must register as self-employed via www.gov.uk/register-for-self-assessment/self-employed if not already done (even for voluntary payments).
  • Integration with Tax Calculation:
    • In SA110 (Tax Calculation Summary), Class 2 is handled in Section 15.
    • Copy the calculated amount to Box 4.1 on the summary pages.
    • If voluntary, it’s added to your total tax bill.

Benefits and Why Pay Voluntarily

  • Qualifying Year: Each year of Class 2 (paid or credited) counts toward:
    • State Pension (basic or new).
    • Maternity Allowance.
    • Bereavement Support Payment.
    • Contributory Employment and Support Allowance.
  • Gaps in Record: Voluntary payments fill gaps, especially useful if profits fluctuate or you’re part-time self-employed.
  • No Impact on Tax: Class 2 doesn’t affect your income tax liability—it’s separate.

Changes for 2024-25

  • Reform from April 2024: Class 2 became non-mandatory. Previously (2023-24), it was payable if profits exceeded £6,725. Now, it’s credited without payment above the threshold, reducing admin for higher earners. This was announced in the 2023 Autumn Statement to simplify self-employment taxes.
  • No Retrospective Changes: Applies only from 2024-25 onward.

Additional Notes

  • If You Stopped/Started Self-Employment: Prorated based on weeks traded; notify HMRC via www.gov.uk/stop-being-self-employed to adjust.
  • Records: Keep evidence of profits/expenses for 5 years after filing (or longer if queried).
  • Help and Issues: Use Helpsheet HS222 for profit calculations. If software glitches occur (e.g., as reported in November 2025 for tax returns), HMRC has resolved them—file as normal.
  • For more: Visit www.gov.uk/self-employed-national-insurance-rates or contact HMRC Self Assessment helpline (0300 200 3310).

If your situation involves combined employment/self-employment or specific benefits claims, consult HMRC or a tax adviser for personalized advice.