Class 2 vs Class 4 NI for the self-employed (2025/26)

National Insurance contributions (NICs) for the self-employed have undergone significant changes in recent years, and 2025/26 is no exception. If you're self-employed, understanding how Class 2 and Class 4 NICs work—and especially how the abolition of most Class 2 NICs affects you—is critical for managing your tax liabilities and ensuring you maintain your entitlement to key state benefits. This guide breaks down the new rules and offers practical advice tailored for UK founders, freelancers, and side hustlers.

What Are Class 2 and Class 4 National Insurance Contributions?

National Insurance contributions are payments made by workers and employers towards certain state benefits, including the State Pension, maternity allowance, and sickness benefits. For the self-employed, NICs are split into two main classes: Class 2 and Class 4. Historically, Class 2 NICs were a flat weekly amount paid to build entitlement to benefits, while Class 4 NICs were a percentage of profits above a certain threshold.

Class 2 NICs used to be compulsory for self-employed individuals with profits above the Small Profits Threshold, while Class 4 NICs were charged as a percentage of profits above the Lower Profits Limit. However, recent reforms have changed this setup.

The Abolition of Most Class 2 NICs: What Changed?

From 6 April 2023, the UK government abolished mandatory Class 2 NICs for most self-employed people. This was part of a plan to simplify the NICs system and reduce costs for the self-employed earning below certain thresholds. Instead, all self-employed individuals now only pay Class 4 NICs based on their profits, provided they are above the threshold.

However, Class 2 NICs have not disappeared completely. Self-employed individuals can still choose to pay voluntary Class 2 NICs to protect their entitlement to contributory benefits such as the State Pension and Maternity Allowance if their profits are below the Small Profits Threshold (£6,725 for 2025/26). This option is particularly relevant for those with fluctuating income or low profits.

Class 4 NICs Explained: The Costs and Thresholds for 2025/26

Class 4 NICs remain compulsory for self-employed individuals with profits over £12,570—the Lower Profits Limit for 2025/26. These contributions are calculated as a percentage of annual profits, with two main rates applying within different profit bands.

• 6% on profits between £12,570 and £50,270 (the Upper Profits Limit)
• 3.25% on profits above £50,270

For example, if your profits for 2025/26 are £40,000, you will pay 6% Class 4 NICs on £27,430 (£40,000 - £12,570), which amounts to £1,645.80. There is no Class 4 NICs on profits below £12,570, so if your profits are under this threshold, you won’t pay Class 4 NICs.

Unlike Class 2 NICs, Class 4 NICs do not count towards entitlement to certain state benefits like the State Pension. They are purely a tax on profits, so it’s important to factor this into your tax planning.

Practical Steps to Manage Your NICs as a Self-Employed Person

To stay on top of your NICs liabilities for 2025/26 and beyond, it’s essential to keep accurate financial records and review your profits regularly. Here are some practical steps you can take:

1. Maintain detailed records of all business income and expenses throughout the tax year to accurately calculate your profits.
2. Use HMRC’s online Self Assessment service or trusted accounting software to estimate your NICs and tax liabilities.
3. Consider setting aside money monthly to cover your expected Class 4 NICs and income tax bills, so you’re not faced with a large lump sum at the end of the year.
4. If your profits are close to the Small Profits Threshold, consider whether paying voluntary Class 2 NICs is worthwhile to protect your benefits entitlement.
5. Stay informed about any changes to NIC thresholds and rates announced in the UK Budget or Autumn Statement.

It’s also worth consulting a qualified accountant or tax adviser if your profits fluctuate significantly or if you have multiple income streams. They can help you optimise your NICs and tax position.

Real-Life Example: How Jane, a Freelance Graphic Designer, Navigates NICs

Jane is a freelance graphic designer based in Manchester. Her profits for the 2025/26 tax year are projected to be £30,000. Here’s how she manages her NICs:

• Her profits exceed the lower profits limit of £12,570, so she must pay Class 4 NICs at 6% on £17,430 (£30,000 - £12,570), amounting to £1,045.80.
• Since Class 2 NICs are abolished for most self-employed, she doesn’t pay these automatically. However, Jane opts to pay voluntary Class 2 NICs to protect her State Pension entitlement, costing her £3.45 per week or around £179 annually.
• Jane budgets monthly for these contributions alongside her income tax, ensuring she has no surprises when her Self Assessment bill is due.
• She uses an accountant to help her claim allowable expenses and keep records accurate, reducing her taxable profits and thus her NICs.

Jane says, “Paying voluntary Class 2 NICs felt like a small price for peace of mind. Knowing I’m building my State Pension while managing my taxes carefully means I can focus on growing my business without worrying about unexpected bills.”

"Paying voluntary Class 2 NICs felt like a small price for peace of mind. Knowing I’m building my State Pension while managing my taxes carefully means I can focus on growing my business without worrying about unexpected bills. – Jane, Freelance Graphic Designer"

Key Takeaways and Final Advice for 2025/26

The abolition of mandatory Class 2 NICs has simplified the NICs system for many self-employed people, but it’s important not to overlook the ongoing impact of Class 4 NICs. Knowing the thresholds and rates for 2025/26 will help you plan your finances effectively.

• Class 4 NICs remain a significant cost on profits above £12,570, charged at 6% up to £50,270 and 3.25% beyond that.
• Voluntary Class 2 NICs are still available and advisable if your profits are low but you want to protect your benefit entitlements.
• Accurate record-keeping and regular profit reviews are essential for managing your NIC obligations and avoiding surprises at Self Assessment time.
• Consulting professional advice can help you optimise your tax and NIC position, especially if your income is variable or complex.