Tax & social
National Insurance contributions (NICs)
UK social security tax that funds the State Pension and certain benefits. Self-employed pay Class 2 and Class 4; limited company directors pay via salary.
National Insurance is the UK equivalent of social security contributions. The class you pay depends on your work status:
- Class 1 — employees, paid via PAYE
- Class 2 — flat weekly contribution for the self-employed (about £3.45/week in 2024-25)
- Class 4 — percentage-based on self-employed profits (6% between £12,570-£50,270, then 2%)
Limited company directors typically pay Class 1 on their salary and zero NICs on dividends — one of the main reasons incorporating becomes attractive at higher income levels.
Paying NICs is what builds your State Pension entitlement: you need 35 qualifying years for the full state pension (£221.20/week in 2024).
Key points
- Class 2 NICs: £3.45/week for sole traders (2024-25)
- Class 4 NICs: 6% on profits £12,570-£50,270, 2% above
- Dividends: no NICs — major tax-saver for limited company directors
- 35 qualifying years = full UK State Pension