Sarah Bradford outlines the National Insurance contributions system for the self-employed and explains what to do if Class 2 contributions are being charged incorrectly.
There are two classes of National Insurance contributions (NICs) which may be of relevance to a self-employed earner – Class 2 and Class 4.
Class 4 NICs are relevant where the self-employed earner has profits equal to or exceeding the small profits threshold. Class 2 NICs, which are voluntary, are only relevant where the self-employed earner’s profits are below the small profits threshold and the earner wants to pay a contribution to secure a qualifying year for state pension and contributory benefits purposes.
Class 4 NICs
Following the abolition of the liability to pay Class 2 contributions from 6 April 2024 onwards, Class 4 contributions became the mechanism by which a self-employed earner built up entitlement to the state pension and contributory earnings.
Class 4 NICs are payable where the profits from the self-employment exceed the lower profits limit. For 2025/26, this is set at £12,570 and is aligned with the personal allowance for tax purposes. Class 4 contributions are payable at the rate of 6% of profits between the lower profits limit of £12,570 and the upper profits limit of £50,270 and at the rate of 2% on profits in excess of £50,270 (for 2025/26).
Self-employed earners whose profits are between the small profits threshold (which for 2025/26 is £6,845) and the lower profits limit do not have to pay any Class 4 contributions on their profits. Instead, they receive a National Insurance credit which provides them with a qualifying year for state pension purposes for zero contribution cost.
Self-employed earners whose profits from self-employment are below the small profits limit have no liability to Class 4 NICs; nor do they receive the National Insurance credit.
Class 4 contributions are payable with income tax through the self-assessment system. Class 4 contributions for 2025/26 must be paid by 31 January 2027. Class 4 contributions are taken into account in working out whether the taxpayer must make payments on account, which is the case where the previous year’s tax and Class 4 NICs liability is £1,000 or more unless at least 80% of the tax due is deducted at source (e.g., under PAYE).
Class 2 NICs
The liability to pay Class 2 NICs was abolished from 6 April 2024. Since that date, Class 2 NICs have been voluntary contributions, which can be paid by self-employed earners whose profits from self-employment are below the small profits threshold (£6,845 for 2025/26). The rate of voluntary Class 2 contribution is set at £3.50 per week for 2025/26 – an annual liability of £182.
Where a self-employed earner will not otherwise have the full 35 qualifying years needed to secure a full state pension when they reach state pension age and have not secured a qualifying year through other means (e.g., via the payment of Class 1 NICs or by receiving a National Insurance credit, such as that given to those registered for child benefit for a child under 12), paying voluntary Class 2 contributions can be a good idea. At only £3.50 per week for 2025/26, it is much cheaper to pay voluntary Class 2 contributions where able to secure a qualifying year than to pay voluntary Class 3 contributions, which for 2025/26 are payable at the rate of £17.75 per week. Voluntary Class 2 contributions are, like Class 4 contributions, payable through the self-assessment system.
For 2023/24 and earlier tax years, Class 2 contributions were payable in addition to Class 4 contributions, with the liability to Class 2 NICs starting once profits reached the small profits threshold and the Class 4 NICs liability arising once profits exceeded the lower profits limit. For 2022/23 and 2023/24, self-employed earners whose profits were between the small profits threshold and the lower profits threshold (which was aligned with the Class 4 NICs lower profits limit) paid Class 2 contributions at a notional zero rate, securing a qualifying year for zero cost. Class 2 contributions were payable at the weekly Class 2 NICs rate where profits exceeded the lower profits threshold. For 2021/22 and earlier years, self-employed earners were liable to pay Class 2 contributions at the Class 2 weekly NICs rate where profits exceeded the small profits threshold.
Further, prior to 2024/25, it was the payment of Class 2 contributions rather than Class 4 contributions which provided the self-employed earner with a qualifying year for state pension purposes.
Class 2 contributions charged incorrectly
Earlier this year, the Chartered Institute of Taxation (CIOT) flagged an issue relating to Class 2 contributions being charged incorrectly. Members had reported that following the submission of their self-assessment tax return for 2024/25, they had received a self-assessment calculation (SA302) from HMRC, which included a liability to Class 2 NICs where they had not opted to pay Class 2 contributions voluntarily. The calculation showed an amount due of either £179.40 (i.e., 52 weeks at the voluntary Class 2 NICs rate for 2024/25 of £3.45 per week) or double this amount – a charge of £358.80.
The CIOT reported the issue to HMRC, who advised that the matter was being investigated ‘as a matter of urgency’.
In July 2025, HMRC addressed the problem in Issue 133 of their Agent Update publication, stating that they were ‘working to resolve an issue affecting some Self Assessment taxpayers in relation to Class 4 National Insurance contributions for last year’.
They further explained that the nature of the error depends on individual circumstances and that some self-employed with profits in excess of £12,570 (the Class 4 NICs lower profits limit) have seen a Class 2 NICs charge of £358.80 added to their account when it should not have been. This is twice the voluntary Class 2 NICs charge for 2024/25. In some cases, the amount that has been added in error is less than this.
For 2024/25, self-employed earners with profits in excess of £12,570 will have a liability to Class 4 NICs only; Class 2 contributions are only payable where the self-employed earner had profits below the small profits threshold of £6,725 for 2024/25 and opted to pay Class 2 contributions voluntarily. For 2024/25 and later tax years, a self-employed earner will not pay both Class 2 and Class 4 contributions.
HMRC corrections
HMRC has stated that it has taken action to correct the Class 2 contributions charged in error where it has the information to do so. Where a correction has been made, HMRC has sent a message to the taxpayer to inform them of this.
Some taxpayers have reported that they have received a letter correcting their NICs figure to that initial (correct) figure as submitted in their tax return. Where this is the case, the information on the SA302 is correct and the taxpayer will not receive further correspondence from HMRC on this matter.
HMRC will correct the records of other taxpayers whose account is showing an incorrect Class 2 NICs charge once the issue has been resolved. HMRC will notify taxpayers when this has been done and will send a new SA302 calculation with a new 30-day limit. However, incorrect Class 2 NICs letters will continue to be sent until HMRC is able to resolve the IT problem in September.
Where taxpayers have already paid the incorrect charge, they will either be refunded or will have a credit added to their self-assessment account.
Practical tip
Self-employed earners who have already filed their 2024/25 self-assessment tax return should check that a Class 2 NICs charge has not been added to their calculation unless they have low profits and they opted to pay it voluntarily. Where a charge has been added in error, they should make sure that it is corrected, and where payment has already been made, that they have claimed a refund or received a credit. They may also wish to check that their National Insurance record is correct.
