Class 4 National Insurance contributions Frequently Asked Questions

I am already paying Class 1 contributions; can I reduce my Class 4 contributions?

There are two methods either by deferment before the tax year starts or by a refund once the final liability has been calculated.

You may be able to defer payment of Class 4 (and Class 2) contributions if you expect to be both employed and self-employed during the tax year and:

  • your earnings as an employee are likely to be substantial and
  • your total National Insurance contributions liability will be over the maximum by more than £10.

Deferment application leaflet CA72A (PDF 96K) should be obtained from the Deferment Services who will then be responsible for the calculation and collection of any Class 4 contributions.

You can apply for a refund if:

  • you didn't apply for exception or deferment in time and paid Class 4 National Insurance contributions or
  • your Class 4 National Insurance contributions are fully paid and you have paid more than the maximum amount of National Insurance contributions.

Refund applications form CA5610 can be obtained from:

HM Revenue and Customs
National Insurance Contributions Office
Deferment Services
Longbenton
Newcastle upon Tyne
NE98 1ZZ

On what income do I have to pay Class 4 National Insurance contributions?

You will have to pay Class 4 National Insurance contributions on:

  • your trading profits as calculated for income tax,
  • if they are immediately derived from carrying on a trade, profession or vocation,
  • the trade, profession or vocation is not carried on wholly outside the UK

You can deduct from your income:

  • certain interest and annual payments – only if they are to do with your business and they have not been already deducted in working out your trading profits for tax purposes
  • business or trading losses

When working out the amount on which to pay Class 4 National Insurance contributions do not take into account:

  • personal allowances
  • retirement annuity relief, personal pension relief and certain pension contributions

Note: You should use the self-employment pages of the SA return and accompanying notes to make this calculation.

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What is the current rate of Class 4 National Insurance contributions?

Class 4 National Insurance contributions are based on a percentage of annual profits between a lower and upper limit.

Who will calculate the Class 4 National Insurance contributions payable?

The Class 4 National Insurance contributions you need to pay for any tax year are based on your taxable profits for that year.

From 1996/97 onwards, you should work out the profits on which National Insurance contributions are due when completing your annual tax return. The notes, which accompany your SA return, help you do this.

If you send back your completed tax return by 30 September following the year of assessment the HM Revenue and Customs will:

  • calculate the tax and Class 4 National Insurance contributions due for you or
  • if you calculate the tax and Class 4 NIC yourself you have until 31 January following the year of assessment to send back your SA return.

What if my husband / wife or Civil Partner is self-employed too?

If you are both self employed, your Class 4 contributions will be worked out separately. You are each responsible for paying your own tax and Class 4 contributions.

What about business partnerships?

Each partner in a partnership has to pay their own Class 4 contributions based on their share of the partnership’s profits and gains. This also applies to married couples working together as partners.

When will I have to pay?

Under Self Assessment, the income tax for each year (and your Class 4 National Insurance contributions which are paid with your tax) is normally due in three instalments on 31 January / 31 July / 31 January.

For Example for the tax year 20/04/2005

  • payments on account may be due by 31/01/2005 and 31/07/2005
  • a balancing payment may be due by 31/01/2006
  • payments on account are based on the net income tax and Class 4 National Insurance contributions due for the previous year

See the SA site for more information.

Note: if payment is overdue you will have to pay interest.