Class 4 national insurance contributions

Produced by Tolley

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

  • Class 4 national insurance contributions
  • Exemptions
  • Recategorised earners
  • Salaried members of limited liability partnerships (LLPs)
  • Collection of Class 4 NIC
  • Treatment of trading losses
  • Loan to invest in a partnership
  • Claiming refunds

Class 4 national insurance contributions

Class 2 and Class 4 national insurance contributions (NIC) are paid by self-employed individuals and partners in a partnership 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 the 2021/22 tax year, Class 4 NIC is payable at 9% on profits between £9,568 and £50,270 with an uncapped 2% payable on profits above £50,270.For the 2020/21 tax year, Class 4 NIC was payable at 9% on profits between £9,500 and £50,000 with an uncapped 2% payable on profits above £50,000, see Example 1.

For 2022/23, it is proposed that the NIC rates will increase by 1.25% to 10.25% / 3.25% but will revert back to 9% / 2% in 2023/24 with an additional 1.25% health and social care levy being introduced. Unlike NIC, the social and health care levy will also apply to those over state pension age. For more details, see 'Build Back Better: Our Plan for Health and Social Care'.

For the rates and limits for previous tax years, see the GOV.UK website.

The key point is that the upper profits limit is aligned to the UK higher rate threshold. This means that from 2017/18 onwards, Scottish taxpayers suffer higher rate income tax and the main rate of Class 4 NIC on profits between the Scottish higher rate threshold for non-savings income and the UK higher rate threshold. For 2021/22, this means that Scottish taxpayers pay 50% of their

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