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Do I need to pay National Insurance as a sole trader?

February 10, 2022
Paid by the majority of UK citizens in employment, National Insurance contributions (NICs) are payments made to HM Revenue and Customs (HMRC) to qualify for state benefits, such as the State Pension.

While most UK employees and limited company directors can have their NICs paid through Pay As You Earn (PAYE), the total amount owed and the frequency these contributions are made at looks a lot different for self-employed sole traders.

In this article, we’ll be taking a look at the National Insurance contributions paid by sole trader business owners, including when sole traders need to start paying NICs, how to do so and how much they need to pay.

Do I need to pay National Insurance contributions as a sole trader?

In short: yes. As a sole trader, it is a legal requirement for you to pay National Insurance contributions if your sole trader profits are above the thresholds for Class 2 and Class 4 National Insurance set by HMRC for the tax year in question.
In order to make National Insurance contributions as a sole trader, you'll need to make sure you have your National Insurance number close to hand, and are both older than 16 and below the State Pension age.

Pressed for time? We have an overview on paying National Insurance as a sole trader for you below.

Class 2 National Insurance contributions

Class 2 NICs are currently set at a weekly flat rate of £3.15 a week, amounting to £163.80 in a full tax year (between 6th April and 5th April every year). This is again an increase from the 2021/22 rates of £3.05 a week, amounting to £158.60 in that tax year.
It’s worth noting that if you are a married woman or widow entitled to reduced rate contributions, you do not need to pay Class 2 NICs, although you’ll need to start paying again if your marriage is annulled or you get divorced. You can find out whether or not you need to pay Class 2 NICs on the website.

Class 4 National Insurance contributions

If you’re a sole trader earning profits higher than the Lower Profits Limit — £11,909 for tax year 2022/23 —  you’ll need to start paying Class 4 NICs.Unlike Class 2 NICs that are set at a weekly flat rate, Class 4 NICs are instead set at a percentage rate, with sole traders paying 10.25% on their self-employed profits above £11,909, or 3.25% on profits above the Upper Profits Limit of £50,270 for the 2022/23 tax year.
This is a 1.25% increase on Class 4 National Insurance (NI) rates from the previous tax year after an announcement to raise National Insurance rates by the Exchequer in the 2022 Spring Statement.

Do I need to pay NICs if I’m employed and self-employed?

For side hustlers and freelancers in full-time employment, your NI situation is a little more unique.As an employee, your employer will deduct Class 1 National Insurance from your pay packet automatically as part of PAYE. However, if your sole trader profits surpass the Small Profits Threshold, you’ll need to start paying Class 2 NICs too.If this is the case, you’ll only need to pay 3.25% Class 4 National Insurance on profits above £11,909 in the tax year 2022/23.

How much National Insurance do I pay as a sole trader?

Since the conditions determining the total amount of National Insurance to pay can be quite a lot to wrap your head around, we’ve broken down the National Insurance rates for the 2021/22 and 2022/23 tax year below.
Class 2 NICs2021/222022/23
Small Profits Threshold£6,515£6,725
Weekly rate£3.05£3.15
Class 4 NICs2021/22Rate2022/23Rate
Lower Profits Limit£9,5689%£11,90910.25%
Upper Profits Limit£50,2702%£50,2703.25%

How do I pay National Insurance?

When submitting your Self Assessment tax return, the total amount you owe in National Insurance contributions is worked out as part of the Self Assessment process by deducting your business expenses from your annual profits — although the payment dates are slightly different for Class 2 and Class 4 NICs.

Class 4, however, is paid every six months in two instalments, the first as part of your payment on account on 31st July, and the second alongside your final Self Assessment payment on 31st January.

Voluntary National Insurance contributions

While sole traders are only legally obligated to start paying National Insurance once they surpass the Small Profits Threshold, some sole traders may choose to start making voluntary contributions.

If you have gaps in your National Insurance record — for instance, you were self-employed but had small profits, or were living abroad — you might choose to make voluntary Class 2 NICs to ensure you can still qualify for state benefits.