Class 4 national insurance contributions

By Tolley
OMB_tax_img4

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Class 4 national insurance contributions
  • Exemptions
  • Collection of Class 4 NICs
  • Class 4 contributions and losses
  • Claiming refunds

Class 2 and Class 4 national insurance contributions (NICs) are paid by self-employed individuals on their profits arising within the UK. This guidance note considers Class 4 contributions. For Class 2 contributions, see the Class 2 national insurance contributions guidance note.

Class 4 contributions are essentially a profit-based tax; there is no attached benefit entitlement. The contributions are calculated according to the level of profits in a tax year. ‘Profits’ for Class 4 purposes includes all profits from a trade, profession or vocation conducted in the UK and are chargeable under ITTOIA 2005, ss 5–23. The calculation of profits for Class 4 purposes is made on the same basis as profits for income tax purposes.

For 2018/19, Class 4 NICS are payable at 9% on profits between £8,424 and £46,350 with an uncapped 2% payable on profits above £46,350. For 2017/18, the rates were 9% on profits between £8,164 and £45,000 with 2% being paid above that level. For 2016/17, the rates were 9% on profits between £8,060 and £43,000 with 2% being paid above that level.

SSCBA 1992, s 15

Class 4 NICs are payable by individuals aged between 16 and the ‘pensionable age’, the age at which the individual becomes entitled to a state pension. The pensionable age for individuals is gradually increasing.

For men born before 6 December 1953, the pensionable age is 65 years. For those born after this date, the pensionable age increases in tranches, reaching 68 years for those born after 6 April 1978.

For women born after 6 April 1950, the pensionable age increases gradually from 60 years until it reaches 65 years for those born between 6 November 1953 and 5 December 1953. From then on, the pensionable age for a woman is aligned to that of a man and so will eventually reach 68 years for those born after 6 April 1978.

More on National insurance: