Class 4 National Insurance for sole traders: rates, thresholds and what changes in 2026-27
Class 4 NI sits quietly on top of income tax and catches a lot of sole traders off-guard at payment on account time. Here's how it's calculated, what the 2026-27 rates are, and how to make sure you're setting enough aside.
What is Class 4 National Insurance?
Sole traders pay two types of National Insurance. Class 2 was a flat weekly charge that was abolished from 6 April 2024, removing a fixed £3.45/week cost for most self-employed people. Class 4 remains — and it's the one that actually matters for your tax bill.
Class 4 NI is levied on your self-employment profits — the same figure you calculate for income tax purposes after allowable expenses. It is not deducted at source by a client or employer. Instead, it is collected through Self Assessment alongside your income tax, with the same payment dates and the same returns.
One widely held misconception is that paying Class 4 NI builds entitlement to the state pension. It does not. Class 4 is purely a revenue-raising charge. Only Class 1 contributions (paid by employees and employers) and Class 3 voluntary contributions generate qualifying years toward the state pension. If you've been self-employed for most of your working life, this distinction matters — see the final section of this article.
Class 4 NI rates for 2026-27
The 2026-27 rates are set out below. The main rate band — which covers the vast majority of sole trader profits — was cut from 9% to 8% in January 2024 and further to 6% from April 2024. At 6%, this is the lowest the main rate has been for many years and represents a meaningful reduction for sole traders earning in the £20,000–£50,000 range.
| Band | Profit level | Rate 2026-27 |
|---|---|---|
| Lower profits limit | Up to £12,570 | 0% |
| Main rate | £12,570 – £50,270 | 6% |
| Upper rate | Above £50,270 | 2% |
The lower profits limit (£12,570) is aligned with the personal allowance for income tax. The upper profits limit (£50,270) is aligned with the higher rate income tax threshold. Both thresholds are frozen through to April 2028 under current government policy — meaning fiscal drag will gradually pull more sole traders into higher bands as their earnings grow.
How Class 4 NI interacts with income tax
Both income tax and Class 4 NI are calculated on the same profit figure, so it's important to understand the combined effective rate — the percentage you actually lose to HMRC at each level of income. The figures below assume the standard personal allowance of £12,570 and no other income.
| Profit band | Income tax | Class 4 NI | Combined rate |
|---|---|---|---|
| Up to £12,570 (personal allowance) | 0% | 0% | 0% |
| £12,570 – £50,270 | 20% | 6% | 26% |
| £50,270 – £125,140 | 40% | 2% | 42% |
| Above £125,140 | 45% | 2% | 47% |
The jump from 26% to 42% at the £50,270 threshold is real and material. A cleaning business generating £48,000 profit keeps 74p of every additional pound earned. The same business at £55,000 profit is keeping only 58p. This threshold effect is worth understanding when deciding whether to invest in equipment, take on an additional member of staff, or adjust your pricing in any given tax year.
Worked example: £35,000 profit
A domestic cleaner with £35,000 profit in 2026-27 would calculate as follows:
- Taxable profit above personal allowance: £35,000 − £12,570 = £22,430
- Income tax at 20%: £22,430 × 20% = £4,486
- Class 4 NI at 6%: £22,430 × 6% = £1,346
- Total HMRC liability: £5,832 (16.7% of gross profit)
Worked example: £55,000 profit
A commercial cleaning business owner with £55,000 profit in 2026-27:
- Income tax (basic rate band): (£50,270 − £12,570) × 20% = £37,700 × 20% = £7,540
- Income tax (higher rate): (£55,000 − £50,270) × 40% = £4,730 × 40% = £1,892
- Class 4 NI (main rate): (£50,270 − £12,570) × 6% = £37,700 × 6% = £2,262
- Class 4 NI (upper rate): (£55,000 − £50,270) × 2% = £4,730 × 2% = £95
- Total HMRC liability: £11,789 (21.4% of gross profit)
When is it paid? Payment on account explained
Class 4 NI does not have its own separate payment schedule — it is collected as part of your Self Assessment return alongside income tax. The key dates are:
- 31 January — balancing payment for the prior tax year, plus your first payment on account for the current year
- 31 July — second payment on account for the current year
Payments on account are advance payments toward the following year's tax bill. Each payment on account is 50% of the prior year's total Self Assessment liability (income tax plus Class 4 NI combined). If your 2024-25 total bill was £5,832, HMRC expects two payments of £2,916 — one in January 2026 and one in July 2026 — toward your 2026-27 liability.
In your first year of self-employment, there are no payments on account due in January. You only pay the balancing payment for that first year. In your second year, you receive the balancing payment for year two plus the first payment on account for year three — all in the same January bill. This can easily be twice what you paid the previous January, and it catches many sole traders off-guard.
How much to set aside each month
Rather than waiting until January and scrambling to find a large sum, the sensible approach is to set aside a fixed percentage of net profit each month into a separate tax savings account. For most cleaning business sole traders, the following rules of thumb apply:
| Annual profit range | Recommended monthly set-aside |
|---|---|
| Up to £20,000 | 15–18% of monthly profit |
| £20,000 – £50,000 | 25–28% of monthly profit |
| Above £50,000 | 30–35% of monthly profit |
Monthly example: £3,500 net profit
A domestic cleaner earning £3,500 per month profit (£42,000 annualised) sits in the main rate band throughout. Using 27% as the set-aside rate:
- Monthly profit: £3,500
- Set aside at 27%: £945 per month
- Annual set-aside: £11,340
- Estimated actual liability at £42,000 profit: income tax ~£5,886 + Class 4 NI ~£1,767 = ~£7,653
- This leaves a modest buffer — useful because payments on account mean you need roughly 1.5x your liability in accessible funds at January.
Setting aside slightly more than the minimum liability means you build a buffer for the first payment on account, which is due at the same time as the balancing payment in January. Aim for the higher end of the range if you're in your first or second year of self-employment.
Does Class 4 NI count toward your state pension?
No — and this is important. Class 4 NI does not generate National Insurance credits toward the new state pension.
The full new state pension (2026-27: £221.20 per week) requires 35 qualifying years of National Insurance contributions or credits. Only Class 1 contributions (paid through PAYE as an employee or employer) and Class 3 voluntary contributions generate qualifying years for pension purposes.
Class 4 NI never has, and never will, contribute to your state pension entitlement. It is purely a revenue tax on self-employment profits.
Previously, Class 2 NI (the flat weekly charge abolished in April 2024) did generate qualifying pension years, which is why its abolition prompted concern from low-earning sole traders. HMRC has addressed this: sole traders with profits above the small profits threshold now maintain their NI record through the income tax self-assessment system. However, if you have any gaps in your NI record from years with low or no income, you may want to consider making voluntary Class 3 contributions (£17.45/week in 2026-27) to protect your entitlement.