What Is Class 4 National Insurance? | The Ultimate Class 4 NIC Guide
Updated: Feb 10
Class 4 National Insurance is a type of National Insurance contribution that is paid by self-employed individuals in the United Kingdom. It is one of several types of National Insurance contributions, which are a tax levied by the government on earned income and used to fund various social security programs in the UK.
How is Class 4 National Insurance Calculated?
Self-employed individuals in the UK are required to pay Class 4 National Insurance contributions on their annual profits. The contribution is calculated as a percentage of the individual's profits, with the rate increasing as profits increase. The current rate for Class 4 National Insurance contributions for the 2021-2022 tax year was 9% for profits between £9,568 and £50,270, and 2% for profits above £50,270.
For the year 2022 -2023, it is 9.73% on profits between £11,909 and £50,270, 2.73% on profits over £50,270.
Need to Calculate Your Class 4 NIC? Here is the Class 4 National Insurance Calculator for You!
What are National Insurance Contributions in the UK?
National Insurance Contributions (NICs) are a type of tax levied by the UK government on earned income. The purpose of NICs is to fund various social security programs in the UK, including the state pension, unemployment benefits, and health benefits such as the National Health Service.
In addition to funding social security programs, NICs are also used to build up an individual's National Insurance record, which is used to determine their eligibility for certain benefits, such as the state pension. To be eligible for the state pension, individuals must have paid or been credited with enough National Insurance contributions over the course of their working life.
It is important for individuals to make sure they are paying the correct amount of NICs, as failure to do so can result in fines and penalties. Employers are responsible for deducting NICs from their employees' pay and paying them to HM Revenue & Customs, while self-employed individuals are responsible for paying their Class 2 and Class 4 National Insurance Contributions through their Self Assessment tax return.
Where is Money Raised through Class 4 NICs Used?
The money raised through Class 4 National Insurance contributions is used to fund various social security programs in the UK, including the state pension, the National Health Service, and other benefits such as Jobseeker's Allowance and Employment and Support Allowance. These programs provide support to individuals who are unable to work due to illness or disability, as well as to those who are out of work and looking for employment.
Where are the Benefits of Class 4 NICs?
One of the key benefits of paying Class 4 National Insurance contributions is that it helps individuals build up their National Insurance record, which is used to determine eligibility for the state pension. The state pension is a weekly payment made to individuals who have reached the state pension age and have contributed enough National Insurance over the course of their working life. By paying Class 4 National Insurance contributions, self-employed individuals can help ensure that they are eligible for the state pension when they reach retirement age.
Another important benefit of paying Class 4 National Insurance is access to certain benefits and support programs. For example, self-employed individuals who have paid Class 4 National Insurance contributions for at least 26 weeks may be eligible for Jobseeker's Allowance if they become unemployed. Additionally, individuals who have paid Class 4 National Insurance contributions for at least 39 weeks may be eligible for Employment and Support Allowance if they become ill or disabled.
It is important for self-employed individuals to accurately calculate their Class 4 National Insurance contributions and pay them on time, as failure to do so can result in fines and penalties. Self-employed individuals can calculate their Class 4 National Insurance contributions using HM Revenue & Customs' online calculators and can pay their contributions through their Self Assessment tax return.
How to Register for Class 4 National Insurance Contributions in the UK?
To register for Class 4 National Insurance Contributions (NICs) in the UK, you need to follow these steps:
Determine Your Eligibility: To be eligible for Class 4 NICs, you must be self-employed and earning above the Small Profits Threshold, which is currently £6,475 per year.
Register as Self-Employed: If you are self-employed, you must first register with HM Revenue & Customs (HMRC) as self-employed. You can do this online at the HMRC website or by calling the HMRC Self-Employment helpline.
Register with HMRC: After registering as self-employed, you must register with HMRC to pay Class 4 NICs. You can do this through your Self Assessment tax return, which you must complete each year to declare your self-employed income and pay your taxes.
Provide your National Insurance Number: When registering for Class 4 NICs, you will need to provide your National Insurance number. If you do not have one, you can apply for one by contacting the National Insurance number allocation service.
Calculate and Pay Your Class 4 NICs: Each year, you must calculate your Class 4 NICs based on your self-employed profits. The current rate of Class 4 NICs is 9% on profits between £9,568 and £50,270 per year, and 2% on profits above £50,270 per year. You must pay your Class 4 NICs through your Self-Assessment tax return by the due date, which is typically January 31st.
Registering for Class 4 National Insurance Contributions in the UK involves registering as self-employed with HMRC, registering with HMRC to pay Class 4 NICs, providing your National Insurance number, and calculating and paying your Class 4 NICs through your Self-Assessment tax return each year. By paying Class 4 NICs, you can build up your National Insurance record and ensure that you are eligible for benefits such as the state pension when you reach retirement age.
How to Pay Class 4 NIC?
Class 2 and Class 4 National Insurance is usually paid through Self-Assessment Tax returns.
Who Is Exempt from Paying Class 4 National Insurance in The UK?
In the UK, there are certain circumstances in which individuals are exempt from paying Class 4 National Insurance Contributions (NICs). Here are a few examples:
Low Earnings: If your self-employed earnings are below the Small Profits Threshold, which is currently £6,475 per year, you are exempt from paying Class 4 NICs.
State Pension Age: If you have reached state pension age, you are exempt from paying Class 4 NICs, regardless of your self-employed earnings.
Personal Allowance: If your total income, including your self-employed earnings, is below the Personal Allowance, which is currently £12,570 per year, you are exempt from paying Class 4 NICs.
Bereavement Allowance: If you receive Bereavement Allowance, you are exempt from paying Class 4 NICs for the year in which your spouse or civil partner died and the following year.
Severe Disability: If you receive the Severe Disablement Allowance, you are exempt from paying Class 4 NICs.
It is important to note that exemptions from Class 4 NICs do not affect your eligibility for benefits such as the state pension. To maintain your National Insurance record and ensure that you are eligible for benefits in the future, you should still pay Class 2 NICs if you are self-employed and earning above the Lower Earnings Limit, which is currently £184 per week.
Individuals who are self-employed in the UK may be exempt from paying Class 4 NICs under certain circumstances, such as low earnings, reaching state pension age, or receiving certain benefits. However, it is important to check your eligibility and pay Class 2 NICs if you are self-employed and earning above the Lower Earnings Limit to maintain your National Insurance record and ensure that you are eligible for benefits such as the state pension in the future.
Do You Have to Pay Both Class 2 and 4 National Insurance?
In the UK, individuals who are self-employed may be required to pay both Class 2 and Class 4 National Insurance Contributions (NICs).
Class 2 NICs are a flat weekly rate of £3.05 (2022-2023) that self-employed individuals must pay if they earn above the Lower Earnings Limit, which is currently £184 per week. Class 2 NICs are used to build up your National Insurance record and ensure that you are eligible for benefits such as the state pension when you reach retirement age.
Class 4 NICs are calculated as a percentage of your self-employed profits and are based on the amount of profits you make. The current rate of Class 4 NICs is 9% on profits between £9,568 and £50,270 per year, and 2% on profits above £50,270 per year. Class 4 NICs are used to fund the National Health Service (NHS) and other benefits in the UK.
So, if you are self-employed and earning above the Lower Earnings Limit, you will typically need to pay both Class 2 and Class 4 NICs. However, if your self-employed earnings are below the Small Profits Threshold, which is currently £6,475 per year, you are exempt from paying Class 4 NICs.
It is important to note that you should keep a record of your self-employed earnings and calculate your Class 4 NICs each year so that you can accurately pay the correct amount through your Self-Assessment tax return by the due date, which is typically January 31st.
Individuals who are self-employed in the UK may be required to pay both Class 2 and Class 4 NICs, depending on their earnings. Class 2 NICs are used to build up your National Insurance record, while Class 4 NICs are used to fund the NHS and other benefits in the UK. To ensure that you are paying the correct amount of NICs and maintaining your National Insurance record, it is important to keep accurate records of your self-employed earnings and calculate your Class 4 NICs each year.
What Happens If We Don’t Pay Class 4 National Insurance?
If you do not pay the required amount of Class 4 National Insurance Contributions (NICs) in the UK, there can be consequences. Here are a few examples:
Penalties and Interest: If you do not pay your Class 4 NICs on time, you may be subject to penalties and interest charges. The interest rate is currently 2.6% per year. The penalties for late payment can be up to 100% of the amount you owe.
Loss of Benefits: If you do not pay the required amount of NICs, it can impact your eligibility for benefits such as the state pension and other benefits funded by the NICs system.
Criminal Charges: In extreme cases, failure to pay Class 4 NICs can result in criminal charges and a possible prison sentence.
Poor Credit Rating: Non-payment of Class 4 NICs can also have a negative impact on your credit rating, which can make it more difficult to obtain credit in the future.
It is important to note that the HM Revenue and Customs (HMRC) will take enforcement action to recover any unpaid NICs. This can include using debt collection agencies, making deductions from your future payments, or taking legal action to recover the debt. Failing to pay the required amount of Class 4 NICs in the UK can have serious consequences, including penalties, interest charges, loss of benefits, criminal charges, and a poor credit rating. To avoid these consequences, it is important to keep accurate records of your self-employed earnings and calculate your Class 4 NICs each year, so that you can pay the correct amount by the due date, which is typically January 31st.
At What Age Do You Stop Paying Class 4 National Insurance?
The age at which you stop paying Class 4 National Insurance Contributions (NICs) in the UK depends on your current state pension age and the number of NICs you have paid in the past.
In the UK, the state pension age is currently 67 years old and is due to increase to 68 years old between 2037 and 2039. If you reach state pension age, you will no longer be required to pay Class 4 NICs, even if you continue to work as a self-employed individual.
It is important to note that even if you reach state pension age, you may still be required to pay Class 2 NICs if you continue to work as a self-employed individual and earn above the Lower Earnings Limit, which is currently £184 per week.
Can We Claim Back Class 4 National Insurance?
Class 4 NICs are not refundable once they have been paid. It is not possible to claim back Class 4 National Insurance Contributions (NICs) once they have been paid in the UK. Class 4 NICs are a form of tax that is payable by self-employed individuals and are used to fund the state pension and other benefits, as well as the National Health Service (NHS) and other public services.
However, it is important to make sure that you only pay the correct amount of Class 4 NICs each year, based on your self-employed earnings and allowable expenses. If you overpay Class 4 NICs, you may be able to claim a refund by contacting HM Revenue and Customs (HMRC).
How Can an Accountant Help You with Your Class 4 National Insurance Contribution?
An accountant can help you with your Class 4 National Insurance Contributions (NICs) in the UK by providing expert advice and guidance on the following:
Calculating your NICs: An accountant can help you calculate your Class 4 NICs accurately, taking into account your self-employed earnings and allowable expenses. This can help to ensure that you only pay the correct amount of NICs each year and avoid any penalties or interest charges from HM Revenue and Customs (HMRC).
Keeping Track Of Your NICs: An accountant can keep track of your NICs throughout the year and provide reminders when payments are due. This can help to ensure that you stay on top of your NICs and avoid missing any payments.
Filing Your Self-Assessment Tax Return: An accountant can help you file your Self Assessment tax return accurately and on time, taking into account your Class 4 NICs and other tax liabilities. This can help to ensure that you meet your tax obligations and avoid any penalties or fines from HMRC.
Minimizing Your Tax Liabilities: An accountant can provide advice on how to minimize your Class 4 NICs and other tax liabilities. For example, they can help you identify tax-efficient ways of structure your business, such as using a limited company, which can help to reduce your NICs and other tax liabilities.
Pro Tax accountant can provide valuable help and support with your Class 4 NICs, helping you to stay on top of your tax obligations and minimize your tax liabilities. They can provide expert advice and guidance on a wide range of tax-related issues, making it easier for you to manage your Class 4 NICs and other tax liabilities effectively.
Conclusion
Class 4 National Insurance is an important type of National Insurance contribution that is paid by self-employed individuals in the UK. It is used to fund various social security programs, including the state pension and support programs for individuals who are unable to work. By paying Class 4 National Insurance contributions, self-employed individuals can help ensure that they are eligible for these programs and support when they need it.