If you are self-employed in the UK, National Insurance works differently from PAYE. There is no employer paying half the bill. Instead, you report profits through Self Assessment and pay Class 4 National Insurance on earnings above the lower profits limit. Income Tax applies to the same profits figure (after allowable expenses). The two bites stack — which is why “I invoiced £50k” and “I kept £50k” are very different sentences.
Class 4 rates for 2025/26
For the tax year 6 April 2025 to 5 April 2026, Class 4 NI is charged on your taxable profits (turnover minus allowable business expenses):
- 6% on profits between £12,570 and £50,270 (the main band)
- 2% on profits above £50,270
These thresholds align with Income Tax bands for England, Wales, and Northern Ireland. Scotland uses the same NI rules — only Income Tax bands differ. Full rate tables are on gov.uk.
What happened to Class 2?
Class 2 was a flat weekly charge for self-employed people above a small profits threshold. From 6 April 2024 it was abolished as a separate payment for most sole traders. If your profits are at or above the Class 2 threshold (£6,845 in 2025/26), you are treated as having paid Class 2 for state pension and benefit purposes — without an extra line on your bill.
You can still make voluntary Class 2 contributions in some circumstances (for example, if profits are very low but you want to protect your National Insurance record). That is a niche case; most freelancers only need to think about Class 4 plus Income Tax.
How profits become your tax and NI bill
HMRC does not tax invoices — it taxes profits. The rough order of operations for a sole trader:
- Add up business income for the tax year
- Subtract allowable expenses (software, travel, equipment, a fair share of home office costs if eligible, etc.)
- The result is taxable profit — this feeds both Income Tax and Class 4 NI
- Pay via Self Assessment (payments on account may apply after your first year)
Pension contributions, the trading allowance, and more complex structures (limited company, VAT, partnerships) can change the picture. This guide focuses on the standard sole-trader path that TaxBite models.
Worked example: £50,000 profit (England/Wales/NI)
Imagine a freelance designer with £55,000 turnover and £5,000 of allowable expenses — £50,000 profit. No student loan, no pension, standard personal allowance (£12,570).
Compare a PAYE employee on the same £50,000 salary: employee NI at 8% in the main band is about £2,994 — roughly £748 more per year than Class 4. That is the “contractor premium” people quote before remembering unpaid holiday, sick leave, and the accountant.
Worked example: £70,000 profit
At £70,000 profit, you cross the higher-rate Income Tax threshold (£50,270) and the Class 4 secondary band:
- Class 4 main band: 6% × £37,700 = £2,262
- Class 4 above £50,270: 2% × £19,730 = £395
- Total Class 4: about £2,657
- Income Tax (with taper not involved): about £15,432
- Take-home in this model: roughly £51,911/year (~£4,326/month)
The 2% slice above £50,270 is easy to miss when you are mentally budgeting at “6% on everything”.
Class 4 vs employee NI — why the gap exists
Employees pay 8% (2025/26) on earnings between £12,571 and £50,270, plus 2% above that. Self-employed Class 4 is 6% and 2% on the same profit bands. Employers also pay employer NI — but that does not land in your pocket either way.
The difference is real but smaller than social media suggests. Our contractor vs PAYE guide walks through the full £50k comparison, including what PAYE quietly includes (paid leave, workplace pension, IR35).
When you actually pay
Unlike monthly PAYE, sole traders usually settle up through Self Assessment. Your balancing payment for 2025/26 is due by 31 January 2027 (with possible payments on account in January and July 2026 if your bill is large enough). Cash-flow planning matters: the taxman is patient until he is not.
If you are newly self-employed, register with HMRC promptly. Late registration and underestimated payments on account are how people get surprised in year two.
Common mistakes
- Using turnover instead of profit — NI and tax are on profits, not gross invoices
- Forgetting higher-rate tax — crossing £50,270 hits both 40% Income Tax and the 2% NI band
- Ignoring the £100k taper — profits above £100k reduce your personal allowance (see our £100k cliff guide)
- Mixing up limited company and sole trader — directors and PSCs follow different rules; this guide is for sole traders
Model your numbers in TaxBite
Switch Employment Type to Self-Employed/Contractor, enter your profit (or turnover minus expenses), and hit calculate. TaxBite applies 2025/26 Income Tax and Class 4 NI so you can see monthly take-home, effective rates, and the Tax Bite breakdown before you price a project or quit your day job.
Calculate as self-employed →Contractor vs PAYE → · Pay rise take-home →
Estimates only — not tax advice. Rates and thresholds can change; check gov.uk for official guidance. VAT, corporation tax, and partnership splits are not covered here.