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

February 10, 2022

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.

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

Class 2 National Insurance contributions

Enabling self-employed workers to qualify for the Basic State Pension, Bereavement Benefits, Maternity Allowance and the contributory Employment and Support Allowance (ESA), Class 2 NI contributions are paid by self-employed people earning above the Small Profits Threshold of £6,725, up from the previous Small Profits Threshold of £6,515 for the 2021/22 tax year.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.

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.

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 you surpass the Lower Profits Limit, you might need to factor paying Class 4 NICs into the mix. However, the total percentage amount you pay on your profits is determined by whether or not you’ve paid the maximum annual amount of National Insurance for that tax year in Class 1 and Class 2 NICs.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 NICs	2021/22	2022/23
Small Profits Threshold	£6,515	£6,725
Weekly rate	£3.05	£3.15

Class 4 NICs	2021/22	Rate	2022/23	Rate
Lower Profits Limit	£9,568	9%	£11,909	10.25%
Upper Profits Limit	£50,270	2%	£50,270	3.25%

How do I pay National Insurance?

Class 2 is paid as part of the final Self Assessment tax bill, with a deadline usually in place for 31st January each year. This is usually paid all at once, unless a voluntary spreading payment plan has been set up between HMRC and the taxpayer specifically.

Voluntary National Insurance 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.