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Taxation (UK) · National insurance contributions for employed and self-employed persons

Class 2 NIC and Employed vs Self-Employed NIC

Updated 11 October 2026 · Fact-checked

Compare the NIC cost of each status. An employee pays Class 1 at 8% and 2%, and the employer pays 15% above £5,000. A self-employed person pays Class 4 at 6% and 2%. Class 2 is no longer compulsory, so TX-UK gives no Class 2 rate to compute.

Understand Class 2 NIC and Employed vs Self-Employed NIC

National insurance is paid on top of income tax. Which class you pay depends on your status. Employees pay Class 1 on earnings, and the employer also pays Class 1 on those earnings. A self-employed person pays Class 4 on trading profits.

Class 2 used to be a flat weekly charge on the self-employed. Since 6 April 2024 it is no longer compulsory. Self-employed people with profits above the small profits threshold are treated as having paid it, so they still build up benefit entitlement, but they pay nothing. People with low profits can choose to pay voluntarily. The ACCA tax rates table for this exam lists Class 1, Class 1A and Class 4 only. It gives no Class 2 rate, so do not invent one. If a question mentions Class 2, say that nothing is payable.

The key comparison is the total cost. An employee's earnings carry employee Class 1 (8% between £12,571 and £50,270, then 2%) and employer Class 1 of 15% above £5,000. A self-employed person's profits carry only Class 4 (6% between £12,571 and £50,270, then 2%). There is no employer, so there is no 15% charge. Self-employment is therefore usually cheaper for NIC.

Remember the rest of the picture. Employed status gives PAYE, with tax collected through payroll. Self-employed people file a self-assessment return and pay tax in instalments. The question may ask only about NIC, or it may ask you to advise on status as a whole.

Key rules to remember

Class 1 employee NIC
£1 to £12,570: nil; £12,571 to £50,270: 8%; above £50,270: 2%
Annual bands for the employee's earnings. Apply each rate only to the slice in its band.
Class 1 employer NIC
£1 to £5,000: nil; above £5,000: 15%
Paid by the employer on top of the salary. The employment allowance of £10,500 can reduce the employer's bill.
Class 4 NIC
£1 to £12,570: nil; £12,571 to £50,270: 6%; above £50,270: 2%
Paid on the self-employed person's taxable trading profits.
Class 2 NIC
No Class 2 payable on the ACCA rates table
No longer compulsory. Voluntary payment is possible for low profits. Do not compute it.
Total NIC cost, employed route
Employee Class 1 + employer Class 1
Compare this with Class 4 alone for the self-employed route.

How to solve Class 2 NIC and Employed vs Self-Employed NIC questions

Use this method for any question that asks for NIC on employed or self-employed income, or a comparison.

  1. 1Identify the status of each person: employee, or self-employed (trader or partner).
  2. 2For an employee, find the annual earnings and compute employee Class 1 band by band.
  3. 3For the employer, compute Class 1 at 15% on earnings above £5,000. Mention the employment allowance only if the facts allow it.
  4. 4For a self-employed person, take the taxable trading profit and compute Class 4 band by band.
  5. 5State that no Class 2 is payable if the question raises it.
  6. 6Add up each route's total NIC and compare. Show the difference.
  7. 7Add a short comment: the employer's 15% is the main reason for the gap, and other factors such as PAYE and filing may matter.
  8. 8 Check that every band slice adds back to the total income.

Quickest way: Band shortcut for NIC comparisons

When to use it: Use it when the question gives one income figure and asks you to compare the cost of employment and self-employment.

  1. Compute the slice above £12,570 and up to £50,270, which is £37,700 at most.
  2. Multiply that slice by 8% for the employee or 6% for the Class 4 payer.
  3. Multiply any excess above £50,270 by 2%, for either route.
  4. For the employer, take income minus £5,000 and multiply by 15%.
  5. Add the totals and subtract. Check the sign of the difference.

Common mistakes in Class 2 NIC and Employed vs Self-Employed NIC

  • Calculating a Class 2 charge

    Older notes show a weekly Class 2 rate.

    Fix: Class 2 is not compulsory and the ACCA table has no rate. State that no Class 2 is payable.

  • Forgetting employer Class 1 in the employed route

    Students only compute what the individual pays.

    Fix: A fair comparison includes the 15% employer cost above £5,000.

  • Using 8% on all earnings above £12,570

    Students forget the upper band.

    Fix: Apply 8% only up to £50,270. Earnings above that suffer 2%.

  • Using the Class 1 employee rate for Class 4

    Both have the same thresholds and a similar shape.

    Fix: Class 4 is 6% in the middle band, not 8%. The top rate of 2% is the same.

  • Applying the £5,000 employer threshold to the self-employed

    Mixing the employer and individual thresholds.

    Fix: Class 4 uses £12,570 and £50,270. The £5,000 threshold applies only to employer Class 1.

  • Applying Class 4 to gross receipts

    Students skip the profit adjustment.

    Fix: Class 4 is charged on taxable trading profits, after adjustments and capital allowances.

Worked examples

Example 1

Anna earns a salary of £40,000. Her employer pays 15% employer Class 1. Ben is self-employed with trading profits of £40,000. Compare the NIC cost of each. Ignore the employment allowance.

Show the solution
  1. Anna's employee Class 1: (£40,000 − £12,570) = £27,430. £27,430 × 8% = £2,194.40.
  2. Employer Class 1: (£40,000 − £5,000) = £35,000. £35,000 × 15% = £5,250.
  3. Total for the employed route: £2,194.40 + £5,250 = £7,444.40.
  4. Ben's Class 4: (£40,000 − £12,570) = £27,430. £27,430 × 6% = £1,645.80.
  5. No Class 2 is payable for Ben.
  6. Difference: £7,444.40 − £1,645.80 = £5,798.60.

Answer: The employed route costs £7,444.40 in NIC, and the self-employed route costs £1,645.80 Class 4 with no Class 2. The employed route costs £5,798.60 more.

Example 2

Chloe earns £60,000 as an employee. Dev is self-employed with trading profits of £60,000. Compute the total NIC for each route and state the difference. Ignore the employment allowance.

Show the solution
  1. Chloe's employee Class 1, middle band: (£50,270 − £12,570) = £37,700. £37,700 × 8% = £3,016.
  2. Chloe's top band: (£60,000 − £50,270) = £9,730. £9,730 × 2% = £194.60.
  3. Employee total: £3,016 + £194.60 = £3,210.60.
  4. Employer Class 1: (£60,000 − £5,000) = £55,000. £55,000 × 15% = £8,250.
  5. Employed route total: £3,210.60 + £8,250 = £11,460.60.
  6. Dev's Class 4, middle band: £37,700 × 6% = £2,262.
  7. Top band: £9,730 × 2% = £194.60. Class 4 total: £2,456.60.
  8. Difference: £11,460.60 − £2,456.60 = £9,004.

Answer: Employed route: £11,460.60. Self-employed route: £2,456.60 Class 4, with no Class 2. The employed route costs £9,004 more.

Exam tips

  • Write the band limits first, then calculate. It earns method marks even if arithmetic slips.
  • In OT questions you get no partial marks, so check each band slice twice.
  • If the question says Class 2, state that none is payable rather than guessing a rate.
  • In a comparison, always include employer Class 1. Many candidates lose marks by leaving it out.
  • Use the rates given in the ACCA tax table, not figures from memory.

Practice questions from National insurance contributions for employed and self-employed persons

Class 2 NIC and Employed vs Self-Employed NIC in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Class 2 NIC and Employed vs Self-Employed NIC: frequently asked questions

Do self-employed people still pay Class 2 NIC?

Not as a compulsory charge. Since 6 April 2024, those with profits above the small profits threshold are treated as having paid it. Those with low profits may pay voluntarily.

Is there a Class 2 rate in the TX-UK tax table?

No. The ACCA table lists Class 1, Class 1A and Class 4 only. You are not expected to compute Class 2.

Why is self-employment cheaper for NIC?

There is no employer Class 1 of 15%. The self-employed person pays only Class 4, which is 6% in the middle band against 8% for an employee.

Which NIC is paid on trading profits?

Class 4 is charged on taxable trading profits above £12,570. The rate is 6% up to £50,270 and 2% above.