Class 4 National Insurance

Class 4 National Insurance contributions are essentially a profit-based tax; there is no attached benefit entitlement. The contributions are calculated according to the level of profits in a tax year. ‘Profits’ for Class 4 NI Contribution purposes includes all profits from a trade, profession or vocation conducted in the UK. The amount of Class 4 NI Contribution you pay is based on your annual profits and is collected through the Self Assessment Tax Return.

If you’re Self Employed, you’ll usually need to pay Class 4 NI contributions. Class 4 is calculated as a percentage of your profits and is payable on profits over a certain threshold. If your profits are below the Lower Profits Limit (LPL), you do not have to pay Class 4 National Insurance. The LPL for the 2020/21 tax year is £9,500. The Class 4 National Insurance rate is 9% on profits between £9,500 and £50,000 and 2% on any profits over £50,000.

Class 4 contributions are used to fund the State Pension and other state benefits. The amount of State Pension you’ll get is based on your National Insurance record, so it’s important to make sure you pay the right amount of National Insurance. If you don’t pay enough for National Insurance, you may not get the full State Pension when you retire. You can make up for missed National Insurance contributions by making Class 3 voluntary contributions. If you have any questions about Class 4 National Insurance or any other aspect of Self Assessment, our team of tax experts at Tax Accountant will be happy to help.