Class 4 National Insurance for the Self-Employed — A Trade Business Guide (2026)

What Is Class 4 National Insurance?

Class 4 National Insurance is a contribution paid by self-employed people on their business profits. It's charged on the profit your trade makes — not on your turnover, and not on what you draw out of the business. If you're a sole trader plumber, electrician, builder, decorator or any other trade, and your profits are above the threshold, you'll pay Class 4 on top of your Income Tax.

The important thing to understand is that Class 4 is not collected separately. HMRC works it out automatically when you submit your Self Assessment tax return, and it's added to the same bill as your Income Tax. There's no separate Direct Debit and no separate deadline — it's all one figure due by 31 January.

Who Pays Class 4 NIC?

You pay Class 4 National Insurance if you're self-employed and your annual profits are above the Lower Profits Limit. That covers:

• Sole traders — the vast majority of trade businesses
• Partners in a partnership — each partner pays Class 4 on their own share of the partnership profit

If you trade through a limited company, you're not self-employed for NIC purposes — you're a director and (usually) an employee of your own company, so you pay Class 1 National Insurance through PAYE instead, not Class 4. The same applies if you have a separate employed job: that income is dealt with under PAYE and doesn't affect your Class 4 on your trade profits, though there is an overall annual maximum across all classes.

Class 4 Rates and Thresholds for 2025/26

Class 4 is charged in two bands. There's a main rate on profits between the Lower Profits Limit and the Upper Profits Limit, and a lower additional rate on profits above the upper limit.

• Lower Profits Limit (LPL): £12,570 — you pay nothing on profit below this
• Upper Profits Limit (UPL): £50,270
• Main rate: 6% on profits between £12,570 and £50,270
• Additional rate: 2% on profits above £50,270

The main rate matters because it was cut. From 6 April 2024 the Class 4 main rate dropped from 9% to 6% — a meaningful saving for tradespeople with profits in the middle band. For most sole traders, this cut is worth several hundred pounds a year. The 2% additional rate on profits over the upper limit was unchanged.

Rates and thresholds can change at fiscal events such as the Budget. The figures above apply to the 2025/26 tax year and are expected to continue into 2026/27, but always check the current rate at GOV.UK before you finalise your numbers.

Class 4 vs Class 2 — What Changed

Self-employed people used to pay two classes of National Insurance: Class 2 (a small flat weekly amount) and Class 4 (the percentage of profits). From the 2024/25 tax year this changed significantly.

Class 2 National Insurance is no longer payable by most self-employed people. If your profits are above the Small Profits Threshold, you're treated as having made Class 2 contributions without actually paying anything — so you still build up your entitlement to the State Pension and contributory benefits. If your profits are below the Small Profits Threshold, you can choose to pay Class 2 voluntarily to protect that entitlement, which is often well worth doing.

This is the crucial distinction for trade business owners to grasp. Class 2 (whether treated as paid or paid voluntarily) is what protects your State Pension and benefit record. Class 4 does not. We cover the Class 2 rules in detail in our separate guide on Class 2 National Insurance for the self-employed.

Class 4 Does Not Count Toward Your State Pension

This surprises a lot of people, so it's worth stating plainly: Class 4 National Insurance does not build up any entitlement to the State Pension or contributory benefits. It's effectively a tax on self-employment profits dressed up as a National Insurance contribution. Paying more Class 4 will not get you a bigger pension.

Your State Pension and benefit record come from Class 2 (treated as paid when your profits are above the Small Profits Threshold) or from Class 1 if you also have employment. If your trade profits dip below the Small Profits Threshold one year, don't assume your Class 4 covers you — it doesn't. That's exactly the situation where paying Class 2 voluntarily protects your record.

How Class 4 Is Worked Out on Your Tax Return

You don't calculate Class 4 yourself — HMRC does it automatically from the figures on your Self Assessment return. But it helps to understand the mechanics so you can budget through the year.

Class 4 is based on your taxable trading profit: turnover minus allowable business expenses, after any capital allowances and adjustments. It uses the same profit figure that your Income Tax is based on, so you only have to get to that number once. Then HMRC applies the bands:

• Profit up to £12,570 → no Class 4
• Profit between £12,570 and £50,270 → 6%
• Profit above £50,270 → 2% on the excess

One useful point: if your trade made a loss in a previous year that you're carrying forward, that loss can reduce the profit on which Class 4 is charged, not just your Income Tax. Make sure your losses are recorded properly so you get the benefit.

Worked Example — £40,000 Profit

Say you're a sole trader carpenter with a taxable profit of £40,000 for the 2025/26 tax year. Here's how the Class 4 calculation works:

• Profit is £40,000, which is below the £50,270 upper limit, so it all falls in the main-rate band.
• The amount charged is the slice above £12,570: £40,000 − £12,570 = £27,430.
• Class 4 at 6% on £27,430 = £1,645.80.

So on £40,000 of profit, your Class 4 National Insurance for the year is roughly £1,646 — and that's on top of your Income Tax. Under the old 9% rate the same profit would have cost about £2,469 in Class 4, so the rate cut saves this carpenter around £823 a year.

If your profit were higher — say £60,000 — you'd pay 6% on the slice from £12,570 to £50,270 (£37,700 × 6% = £2,262), plus 2% on the £9,730 above the upper limit (£9,730 × 2% = £194.60), giving total Class 4 of about £2,457.

How Class 4 Interacts With Payments on Account

Because Class 4 is collected as part of your Self Assessment bill, it also feeds into Payments on Account — the system where HMRC asks you to pay next year's tax in advance, in two instalments.

If your combined Income Tax and Class 4 bill is more than £1,000 (and less than 80% of your tax was collected at source), HMRC will ask you to make Payments on Account. Each payment is 50% of your previous year's total bill, including the Class 4 element. The dates are:

• 31 January — balancing payment for the prior year, plus the first Payment on Account
• 31 July — the second Payment on Account

This is why a first profitable year can feel brutal: in that January you can end up paying the full year's tax and Class 4, plus half of it again as your first Payment on Account. Class 4 is wrapped into all of those figures. If you know your profits have fallen, you can apply to reduce your Payments on Account — but don't reduce them recklessly, because HMRC charges interest if you underpay.

Practical Tips for Budgeting for Class 4

Set money aside as you earn

The single most useful habit is to move a percentage of every payment you receive into a separate tax savings account. For most trade sole traders, putting aside 25–30% of profit covers Income Tax and Class 4 comfortably, with Payments on Account in mind. If you're a higher earner, push that closer to 35–40%. You'd rather have a surplus in January than a shortfall.

Treat Class 4 as part of your tax, not a surprise

Because Class 4 doesn't arrive as its own bill, plenty of tradespeople mentally budget for Income Tax and forget the National Insurance sitting alongside it. When you estimate your tax, always include the 6% (and 2% above the upper limit) so your set-aside is realistic.

Keep clean records of profit, not just turnover

Class 4 is charged on profit, so every allowable expense you record reduces it. Tools, materials, van running costs, insurance, protective equipment, and the mileage or actual costs of business travel all bring your profit — and therefore your Class 4 — down. Good record-keeping through the year is money in your pocket at year end.

Plan for July as well as January

The 31 July Payment on Account catches a lot of people who've spent through the spring. Mark both dates in your calendar and keep the tax account topped up across the whole year, not just before the January deadline.

Quick Reference: Class 4 National Insurance 2025/26

Rates and thresholds shown are for the 2025/26 tax year and can change at fiscal events such as the Budget. Check GOV.UK for the figures that apply to your return.