National Insurance for Self-Employed and Business Owners in the UK

NI classes overview

National Insurance is split into different classes depending on your employment status and income source:

2024/25 rates and thresholds

• Lower Profits Limit (Class 2 trigger) — £12,570
• Small Profits Threshold (voluntary Class 2) — £6,725
• Primary Threshold (employee NI starts) — £12,570/year (£1,048/month)
• Secondary Threshold (employer NI starts) — £9,100/year (£758/month)
• Upper Earnings Limit / Upper Profits Limit — £50,270/year
• Class 4 rate — 6% between £12,570 and £50,270; 2% above
• Class 1 employee rate — 8% between £12,570 and £50,270; 2% above
• Employer rate — 13.8% above Secondary Threshold (£9,100)

Employer National Insurance and Employment Allowance

As an employer, you pay Class 1 employer NI at 13.8%on each employee's earnings above the Secondary Threshold (£9,100/year). You also pay Class 1A NI at 13.8% on benefits in kind such as company cars.

The Employment Allowance lets eligible businesses reduce their employer NI bill:

• 2024/25 — £5,000 per year (if your employer NI bill was under £100,000 in the prior year)
• From April 2025 — rises to £10,500, and the £100,000 employer NI cap is abolished
• Claimed via Real Time Information (RTI) payroll submission
• Cannot be claimed by sole directors with no other employees

Self-employed NI changes (Spring Budget 2024)

The government made two significant changes for the self-employed:

1. Class 4 cut — reduced from 9% to 6% from 6 April 2024. This saves a self-employed person earning £30,000 approximately £750/year.
2. Class 2 reform — self-employed people with profits above £12,570 no longer pay the £3.45/week Class 2 charge as a separate obligation, but still receive a qualifying NI year for State Pension. Those below the threshold can still pay voluntarily.

Director NI: annual earnings method

Directors are subject to NI differently from regular employees. HMRC allows directors to use the annual earnings method, where NI is calculated on cumulative annual earnings rather than monthly. This matters because:

• If a director takes most salary in one month, NI is still assessed across the whole year
• Directors who take a low salary (below the Primary Threshold) and top up with dividends pay no employee or employer NI on their remuneration package
• Dividends are not subject to NI at all — only Income Tax at dividend rates (8.75% basic, 33.75% higher, 39.35% additional)

State Pension and NI qualifying years

NI contributions protect your entitlement to the State Pension and other contributory benefits:

• Need 35 qualifying years for the full new State Pension (£221.20/week in 2024/25)
• Need at least 10 qualifying years to receive any State Pension
• Gaps can be filled by paying voluntary Class 3 NI (£17.45/week in 2024/25) — often worth doing for near-retirement individuals
• NI creditscount as qualifying years without payment — available when claiming Universal Credit, Carer's Allowance, Child Benefit (for children under 12), or Statutory Sick Pay

Minimising your National Insurance liability

• Optimal director salary — take salary at £9,100 (Secondary Threshold) to avoid employer NI if no Employment Allowance; or £12,570 (Primary Threshold) if claiming Employment Allowance, to get a qualifying NI year at no NI cost
• Salary sacrifice — redirect salary into employer pension contributions, reducing both employee and employer NI on the amount sacrificed
• Pension employer contributions — employer pension contributions are not subject to NI and are an allowable business expense
• Employment Allowance — ensure you claim it if eligible; it reduces employer NI by up to £5,000 (£10,500 from April 2025)
• Benefits in kind vs salary — some benefits (e.g. cycle to work, childcare vouchers) are NI-exempt up to HMRC limits

Use our free business calculators to estimate your NI liability.