Self-employed people face different financial pressures when compared to employees – both in terms of how they generate income but also on how they must pay taxes. 

As a self-employed person, your income tax and National Insurance Contributions (NIC) are calculated and processed differently. Your National Insurance Contributions are what allow you to qualify for a state pension and other benefits, but how you pay the tax and what benefits you receive are different to someone in full-time employment. Self-employed people must complete a Self Assessment each tax year and your NIC payments will be calculated during this process. 

We know NIC can be confusing, so let’s be clear: if you’re self-employed, you’ll make your National Insurance contributions as part of your Self Assessment process. There are two different types of contribution, Class 2 and Class 4, which both carry different repayment conditions. 

Let’s take a closer look at what Class 2 NICs are and how they may apply to you.

Class 2 NIC eligibility and profits threshold

Class 2 National Insurance contributions are now voluntary for most self-employed people. Instead of paying Class 2 automatically, your eligibility for National Insurance credits depends on your annual profits.

If your taxable profits are £7,105 or more in the 2026/27 tax year (or more than £6,845 in 2025/26 tax year), you’ll automatically receive National Insurance credits towards contributory benefits such as the State Pension. This means you won’t make any Class 2 NIC payments, but you’ll be treated as if you have. 

If your profits are below the small profits threshold of £7,105 (for 2026/27 tax year, or £6,845 for 2025/26), you won’t receive these credits automatically. However, you can choose to pay voluntary Class 2 contributions to help maintain your National Insurance record and protect your entitlement to certain benefits.

If your profits exceed £12,570, you’ll also need to pay Class 4 National Insurance contributions, which are calculated as a percentage of your taxable profits.

You can calculate your National Insurance obligations using our National Insurance calculator.

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Class 4 contributions explained

If your profits exceed £12,570, then you’ll need to pay Class 4 contributions, which are based on profits. Class 4 contributions are calculated as 6% on profits between £12,570 and £50,270, then 2% on profits over £50,270. 

This means any self-employed person earning over £50,270 will always pay 6% on the initial £37,770 and then an additional 2% calculated on any profits over that. 

If you think Class 4 may apply to you, we’d recommend reading our guide to Class 4 NICs to learn more about who they apply to and how they work. 

Class 1 vs Class 2 vs Class 4 National Insurance Contributions

Employees in a business are subject to Class 1 National Insurance Contributions. They are made up of a combination of deductions from pay and additional employer contributions. The amount you’ll pay depends on your National Insurance category letter and monthly earnings. 

In category A, which is the broadest category of employees, the 2025/26 thresholds are defined as: 

• £129 to £242 (£559 to £1,048 a month): 0%
• £242.01 to £967 (£1,048.01 to £4,189 a month): 8%
• Over £967 a week (£4,189 a month): 2% 

Class 1 contributions are also subject to employer National Insurance contributions. Employers don’t pay NICs on the first £417 per month an employee earns (the Secondary Threshold). Any earnings above this threshold are charged at 15%.

The main differences between Class 1 and Class 2/4 contributions include:

• Class 1 contributions are automatically deducted through PAYE, whereas Class 2 (voluntary) and Class 4 (mandatory) contributions are calculated and paid through Self Assessment.
• Class 1 contributions are also paid by an employer. 
• Class 1 contributions include multiple categories with varying criteria and repayment thresholds. 

Want to see how this differs from Class 2 and 4? Here’s a handy reference table to explain the differences.

What if you’re both an employee and self-employed? 

If you’re an employee but also self-employed, you’re in a tricky situation because you may have to pay a mixture of NICs. Essentially, you must separate both forms of income and pay the relevant NIC for each. 

That means you’ll be eligible for Class 1 NIC on your income as an employee and will need to think about either Class 2 (voluntary) or Class 4 NICs (mandatory if above threshold) for your self-employed income.

Examples of how this might work

Paying Class 2 NICs: methods and deadlines

Most self-employed people don’t need to make physical payments towards Class 2 National Insurance Contributions. If your profits are above £7,105 for 2026/27 (or £6,845 for 2025/26), HMRC automatically gives you National Insurance credits. Those who choose to pay voluntarily do so through their Self Assessment tax return.

However, some self-employed people do not pay through Self Assessment. HMRC will send them a direct payment request by the end of October.

This applies to anyone who is:

• An examiner, moderator, invigilator, or person who sets exam questions.
• Running a business involving land or property.
  
• A minister of religion who does not receive a salary or stipend.
• Living or working abroad and paying voluntary Class 2 contributions.
• A non-UK resident self-employed in the UK.
• Making investments (not as a business and without a fee or commission).

All others pay voluntary Class 2 NIC through Self Assessment by 31 January at the end of the tax year. Late payment penalties start at 5% of the outstanding amount if the deadline is missed.

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Why make voluntary Class 2 NICs?

If your profits fall below the small profits threshold, you don't need to make Class 2 contributions. However, you may elect to make voluntary contributions instead. You’d do this to protect your entitlement to certain benefits – most commonly these are the state pension, maternity allowance and contributions-based employment and support allowance (ESA). 

If you want to make voluntary contributions, you need to contact HMRC before your self assessment date to arrange payment. 

Crunch your NIC obligations in no time

We hope this guide has served you well and shown you how Class 2 and Class 4 NICs work. As a self-employed person, keeping track of your earnings and tax obligations is crucial to cashflow and ultimately to your business’ success. 

Here at Crunch, we provide accountancy software that makes tax simple for self-employed people. Take a look at our Sole Trader online accountancy page to see how we can make your NIC and other tax matters as efficient as possible.