Class 4 National Insurance (NI) contributions are crucial for self-employed individuals in the UK. Alongside Class 2 NI, which will see changes from 6 April 2024, Class 4 contributions ensure self-employed workers contribute to their social security and state pension.
How Much is Class 4?
The rate for Class 4 NI is currently set at 9% on profits exceeding £12,570 annually, with an adjustment planned for 6 April 2024, reducing the rate to 8%. This contribution is calculated on your combined income from all sources.
Understanding National Insurance Classes
Here's a quick overview of how Class 4 NI fits within the broader context of National Insurance contributions:
- Employed individuals earning less than £123 per week who are not eligible for National Insurance credits should consider Class 3 contributions.
- Self-employed individuals with profits less than £6,725 have the option between Class 2 or Class 3 NI, based on the benefits they aim to qualify for.
- Self-employed with profits above £6,725 currently fall under Class 2, which is set to be scrapped from April 2024.
- Employed with a low-earning side hustle? It's best to contact HMRC directly for tailored advice.
- Special categories such as self-employed examiners, ministers, or those with investment income should consider Class 2 or Class 3 NI.
- Living and working abroad? Class 3 may be applicable if you've been connected to the UK for significant periods.
Key Points About Class 4 National Insurance
- Self-Assessment: Class 4 NI is paid through the Self Assessment tax return system, similar to how self-employment income tax is handled.
- Complementary to Class 2: It is paid in addition to Class 2 NI, not as a substitute. However, with Class 2 changes on the horizon, understanding both contributions is essential.
- Below Personal Allowance: Even if your earnings are below the Personal Allowance, Class 4 NI contributions may still apply.
- Multiple Employment Statuses: If you're both employed and self-employed with total earnings exceeding £12,570, you'll navigate a mix of Class 1, Class 2 (until its scrapping in 2024), and Class 4 NI contributions.
For detailed calculations and to determine exactly how much National Insurance you owe, leveraging tools like an employed and self-employed calculator can provide clarity and assist in financial planning.
