National Insurance is a tax to fund financial support schemes like the state pension and some benefit schemes, and your National Insurance record of earnings and contributions determines eligibility to certain benefits.
Depending on your business set up – whether you’re self-employed, an employer, or an employee – you’ll pay different categories and rates of National Insurance. How you pay it is different, too.
In this article, we’ll explain how to pay National Insurance when self-employed, along with everything you need to know.
Paying National Insurance when self-employed
Paying National Insurance when operating as a sole trader is your responsibility, and how much you pay depends on your earnings. You’ll use the self-assessment to report your personal income to HMRC, and to pay your National Insurance and tax, when self-employed.
In contrast, employees – which includes umbrella workers and sometimes contractors operating via their own limited company – have their National Insurance deducted from their gross pay by their employer, who makes the payments to HMRC.
National Insurance is split into four classes. Self-employed workers operating as sole traders may need to pay either Class 2 or Class 4:
Class 2 National Insurance
If your profit exceeds £7,105 (above the ‘Small Profits Threshold’ for 2026/27), you’ll be treated as having paid Class 2 NICs to protect your qualifying year for the State Pension. If your profits are below this, you can make voluntary Class 2 NIC contributions equivalent to £3.65 a week (£189.80 per year) to protect your qualifying year.
Class 4 National Insurance
If your profit is above £12,570, you’ll pay Class 4 National Insurance. This is calculated as a percentage of your profit; 6% on profit between £12,571 and £50,270, and just 2% on profit over £50,270.
What if I’m employed and self-employed?
If you meet the earnings criteria detailed above through self-employment, you’ll also be responsible for paying Class 2 and Class 4 National Insurance at the prevailing rates via the Self-Assessment.
You’ll also pay Class 1 National Insurance as an employee via PAYE, though you may be eligible to defer this.
Earnings thresholds
Employees are entitled to some earnings that are exempt from National Insurance – that is, any income below the Lower Earnings Limit (LEL):
| Threshold | Income | Rate |
| Lower Earnings Limit | £129 a week (between £559 and £1048 a month) | 0% |
| Primary Threshold | £242 a week (between £1,048 to £4,189 a month) | 8% |
| Upper Earnings Limit | £967 a week (over £4189 a month) | 2% |
While Income Tax increases in line with your earnings, National Insurance decreases once you cross the equivalent of the higher rate threshold. So, you’ll pay proportionally less in National Insurance on your earnings as they increase over this threshold. You won’t pay National Insurance on dividends or on pension or investment income.
Benefit-in-Kind
Sometimes, employers can provide a Benefit-in-Kind (BiK) to their employees, whether in the form of a company car or private medical or dental care.
While some benefits are tax-free, most are taxed as though you had received the equivalent value in salary. These aren’t subject to Class 1 National Insurance although the employer will pay Class 1A (Employers) National Insurance.
State Pension entitlement
To receive the state pension, you must have earned at least 10 ‘qualifying years’ and at least 35 years to receive the full state pension. To earn a qualifying year, you must earn at least the Lower Earnings Limit if an employee and at least the Small Profits Threshold if a sole trader.
Most people will work long enough to be eligible, and while there’s room for manoeuvre, you can also make voluntary contributions (subject to certain criteria and timeframes) at the Class 3 rate of £18.40 a week to backfill gaps in your National Insurance record. This means your access to the state pension isn’t affected by any time out of work.
Earnings periods
National Insurance is calculated over an earnings period. These are generally based on the frequency of your pay, which is why the rates are calculated on both a weekly and monthly basis.
In Summary
Paying National Insurance when self-employed is relatively straightforward. There are two rates, which one you pay depends on how much you earn through your work and this is reported and paid via self-assessment rather than deducted from salary as is the case with an employee.
To find out how Caroola can help with your tax and accounting needs, please get in touch and one of our friendly experts will be in touch.