What is National Insurance?

National Insurance contributions (NICs) are mandatory payments made by workers and employers in the UK to qualify for certain state benefits, including the State Pension. As a freelancer or sole trader, you pay different classes of NI compared to employees.

National Insurance classes for the self-employed:

• Class 2 NICs: A flat weekly rate of £3.45 (2025/26), payable if your profits exceed £12,570 per year. These are now collected through self-assessment
• Class 4 NICs: Charged on profits between £12,570 and £50,270 at 6%, and at 2% on profits above £50,270 (2025/26 rates)

Key points for freelancers:

• Both Class 2 and Class 4 NICs are calculated and paid as part of your annual self-assessment tax return
• Class 2 contributions count towards your State Pension entitlement — you need 35 qualifying years for the full State Pension
• If your profits are below £6,725, you can make voluntary Class 2 contributions to protect your pension record
• NICs are separate from income tax and are calculated on different thresholds

Your National Insurance number (e.g., AB 12 34 56 C) is different from your UTR number. Your NI number is issued to you automatically before your 16th birthday if you live in the UK, and you keep the same number for life.

Understanding your NI obligations helps you budget correctly. Include NICs alongside income tax when setting aside money for your tax bill — a common rule of thumb is to save 25-30% of your profits for tax and NI combined.