Class 1 (employees) vs Class 2 / Class 4 (self-employed)
Side-by-side comparison, when-to-use-each guide, and instant conversion. Reviewed for 2026.
Employed under PAYE — deducted automatically by employer on payslip.
Self-employed, sole trader, or partner in a business — paid via January Self Assessment.
| Aspect | Class 1 (employees) | Class 2 / Class 4 (self-employed) |
|---|---|---|
| Type | Class 1 (employee) | Class 2 + 4 (self-employed) |
| Rate 2025-26 | 8% up to £50,270 | 6% (Class 4) + £3.45/wk (Class 2) |
| Who pays | Employer deducts it | Self Assessment (January) |
| Pension qualifying | Yes | Yes (Class 2 secures state pension) |
| Rate above £50,270 | 2% | 2% (Class 4) |
Frequently asked
Do I pay both Class 2 and Class 4?
Yes, if self-employed with profits above the small profits threshold (£12,570). Class 2 secures your state pension entitlement at a flat weekly rate. Class 4 is a percentage on profit. Both are reported and paid through Self Assessment.
How does NI compare if I'm company director?
Directors typically pay themselves a small salary (up to Class 1 threshold) plus dividends. Dividends don't attract NI. This is a key reason limited companies can be more tax-efficient above ~£40k profit.
Frequently asked questions
Do I pay both Class 2 and Class 4?
Yes, if self-employed with profits above the small profits threshold (£12,570). Class 2 secures your state pension entitlement at a flat weekly rate. Class 4 is a percentage on profit. Both are reported and paid through Self Assessment.
How does NI compare if I'm company director?
Directors typically pay themselves a small salary (up to Class 1 threshold) plus dividends. Dividends don't attract NI. This is a key reason limited companies can be more tax-efficient above ~£40k profit.