National Insurance (NI) is a tax on earnings and self-employed profits which also helps determine entitlement to certain state benefits, including the State Pension.
In practical terms, NI often works in a similar way to income tax because it is charged on earnings and profits and collected alongside other taxes.
In this guide, we explain how the NI system works, and what rates you pay as a sole trader – and how it differs from being an employee or a limited company director.
We have updated this guide for the 2026/27 tax year
For 2026/27, self-employed people pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% above £50,270. If your profits are at least £7,105, you normally receive a qualifying year for State Pension purposes without paying Class 2 NICs.
National Insurance – different classes
There are several types of NICs, depending on your working status:
- Class 1 NICs – Paid by employees and employers via PAYE. Limited company directors also pay this on their salaries.
- Class 1A NICs – Paid by employers on most taxable benefits-in-kind, e.g. company cars or private medical cover.
- Class 2 NICs – Since April 2024, most self-employed people no longer have to pay Class 2. If profits are at or above the Small Profits Threshold, Class 2 is treated as paid for benefit purposes. If profits are lower, you may be able to pay Class 2 voluntarily.
- Class 3 NICs – Voluntary contributions you can make to fill gaps in your NI record to maintain your State Pension entitlement.
- Class 4 NICs – Paid by the self-employed based on their annual taxable profits, paid via Self Assessment.
NI for sole traders in 2026/27
If you’re self-employed (i.e. a sole trader or in a business partnership), the following rates apply for 2026/27:
- Class 4 NICs: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270
- Class 2 NICs: £3.65 per week, which you can pay voluntarily if your profits are below £7,105 and you want to protect your NI record
Profits of £7,105 or more normally give you a State Pension qualifying year without you having to pay Class 2 NICs.
If your profits are lower, voluntary Class 2 NICs can help preserve your contribution history. Class 2 NICs are far cheaper than Class 3, which costs £18.40 per week in 2026/27.
For a broader explanation of the other taxes you pay when working for yourself, read our sole trader tax guide.
What’s changed with Class 2 National Insurance?
From April 2024, Class 2 National Insurance is no longer compulsory for most self-employed people.
If your annual profits are at or above the Small Profits Threshold (£7,105), you’ll still get a qualifying year for State Pension purposes – but you no longer have to pay the weekly Class 2 rate.
If your profits fall below £7,105, you can choose to pay voluntary Class 2 NICs (£3.65 per week) to protect your National Insurance record.
The government announced this reform in the 2023 Autumn Statement, aiming to simplify the system for self-employed people. You can still elect to pay Class 2 voluntarily through Self Assessment, where you are eligible.
Check the official thresholds and complete guidance on GOV.UK: National Insurance rates.
NI for limited company directors (overview)
If you run a limited company, you are both a director and an employee. You only pay NI on salary, not on dividends. The company also pays employer NICs on salaries paid above the secondary threshold.
- Employee (Class 1): 8% on earnings between £12,570 and £50,270, then 2% on earnings above this
- Employer (Class 1): 15% on salaries above £5,000 per employee
- Employment Allowance: Reduces employer NICs by up to £10,500 per year if eligible. A company cannot normally claim where its only employee liable for secondary Class 1 NICs is also its sole director.
You can read more about the Employment Allowance, or see our guide to limited company taxes.
How to pay your National Insurance
If you’re self-employed
Your NICs are calculated and paid as part of your annual Self Assessment tax return. Class 4 NICs are calculated on your profits and are normally due by 31 January following the end of the tax year.
If you choose to pay voluntary Class 2 NICs, include them in the same payment.
If you’re employed
Your employer deducts Class 1 NICs automatically via payroll and pays them to HMRC.
Smaller employers may be allowed to pay their PAYE and NICs liabilities quarterly if the average monthly amount due is below £1,500.
What if you’re both self-employed and employed?
If you earn income from both employment and self-employment, each income stream is assessed separately:
- Your employer deducts Class 1 NICs from your wages through PAYE
- You pay Class 4 NICs on your self-employed profits, and may also choose to pay voluntary Class 2 NICs if relevant
Rules limit the total amount of National Insurance you may have to pay when you have more than one source of earnings. If you pay too much, you may be able to claim a refund from HMRC.
Read our guide to being employed and self-employed at the same time.
Do I need to pay voluntary contributions?
If your annual profits are below £7,105, no Class 4 NICs are due, and you will not automatically receive the Class 2 credit based on your self-employed profits.
However, you may be able to pay voluntary Class 2 contributions to obtain a qualifying year towards your State Pension.
Class 3 contributions are another option, but they cost around five times as much. If you’re eligible, it’s usually more cost-effective to pay Class 2 voluntarily.
Before paying voluntary contributions, it is worth checking your National Insurance record to see whether you actually have gaps that need filling.
FAQs
How do I check if I’ve paid enough NICs for a qualifying year?
You can check your National Insurance record online: Check your NI record.
Can I get a refund if I overpay NICs?
Yes. If you have paid more National Insurance than is due – for example, because you have income from employment and self-employment – you may be entitled to a refund. Depending on the circumstances, HMRC may identify the overpayment, or you may need to make a claim.
What counts as profit for Class 4 NICs?
It’s your taxable profit from self-employment after deducting allowable business expenses. Capital allowances may also reduce your taxable profit.
You can read more about which business expenses sole traders can claim.
Are pension contributions deductible before calculating Class 4 NICs?
No. Personal pension contributions do not reduce the trading profits on which Class 4 NICs are calculated, although they may provide Income Tax relief.
Can I defer paying NICs if I’m struggling financially?
There is no automatic deferral for sole traders. However, if you cannot pay your tax and NICs on time, you can ask HMRC about a Time to Pay arrangement. This may allow you to spread your liability over monthly instalments.
Can I stop paying NICs when I reach State Pension age?
The rules differ slightly between Class 2 and Class 4.
For Class 2 purposes, you stop being treated as having paid contributions once you reach State Pension age.
For Class 4 NICs, you continue paying until the end of the tax year in which you reach State Pension age. From the following 6 April, you no longer pay Class 4 NICs.
You may still need to complete a Self Assessment tax return.
Why was Class 2 National Insurance abolished?
Compulsory Class 2 National Insurance was removed from April 2024 for most self-employed people. The aim was to simplify the tax system and reduce the amount of National Insurance the self-employed pay.
If your profits are at or above the Small Profits Threshold, you now receive a qualifying year for State Pension purposes without needing to pay Class 2 NICs. Voluntary Class 2 contributions remain available in certain circumstances.