What are Class 4 National Insurance Contributions?
Class 4 national insurance is paid by self employed people whose profits are over the class 4 lower profits threshold.
Your eligibility to pay class 4 national insurance contributions (NIC’s) are determined by the amount of taxable income you generate from your self employment.
You will only be required to pay class 4 NIC if your profits exceed the lower profits threshold and they are calculated as part of the self assessment tax return calculation process.
Self employed individuals are required to pay class 4 NICs so they can contribute to various government services such as the state pension and benefits, the NHS and other public services.
Failure to pay class 4 national insurance contributions can have a big impact on a person’s financial well being. Non payment can potentially lead to HMRC penalties and it can effect your eligibility for government benefits (including the state pension).
Who needs to pay Class 4 NIC’s?
Class 4 national insurance specifically targets self employed people with taxable profits over the lower profits limit (LPL).
If you pay class 4 NIC the contribution will not count towards any state benefits unlike class 1, 2 and 3 NIC’s.
What are the Class 4 NIC thresholds?
The thresholds for class 4 contributions are based on taxable profits from self employment only and are as follows:
Self employed profits up to £12570: No class 4 payable.
Class 4 lower profits threshold limit (LPL): £12,570.
Class 4 upper profits limit (UPL): £50,270.
The class 4 thresholds can change each tax year with any changes usually announced in the governments budget updates.
How much is Class 4 national insurance?
If your self employed profits are more than the lower profits threshold limit you will need to pay class 4 national insurance contributions initially at a rate of 8% on all of your profits above the limit.
Any taxable profits below the lower profits threshold are considered exempt from class 4 NI contributions.
Profits up to £12570: No class NI 4 payable.
Class 4 lower profits threshold limit: From £12,570 up to £50,270 @ 6%.
Class 4 upper profits limit: Over £50,270 @ 2%.
How do I pay Class 4 NIC?
Your class 4 national insurance contributions are normally paid along with any income tax you owe when you have completed your self assessment tax return.
The class 4 and any national insurance class 2 deductions are shown automatically in the tax calculation relating to your SA tax return.
Class 4 national insurance contributions are required to be paid by 31 January after the conclusion of the relevant tax year.
If you make payments on account your class 4 NIC will be factored into the calculation of your instalments.
Do you pay Class 4 NIC if you are both employed and self employed?
Typically individuals who are both employed and self employed are still required to pay class 4 NIC.
But if you contribute the maximum annual amount through class 1 and class 2 contributions you might not have to pay the entire sum of class 4 NIC.
If this is the case you would only need to pay 2% class 4 NIC on profits exceeding the lower profits threshold.
Can you pay national insurance voluntarily?
If you’re self employed and are exempt from paying class 4 national insurance it might be worth considering if you should pay some national insurance voluntarily.
You can’t pay class 4 NIC’s voluntarily but there are other options made available.
The main reasons to pay national insurance voluntarily are to ensure that you qualify for state benefits which includes the state pension.
Sometimes if you don’t pay enough national insurance you won’t have the sufficient number of qualifying years to receive the state pension in full (or in part) which can be resolved by making voluntary class 2 or class 3 contributions.
