National Insurance (NI) is a state tax on employed individuals’ earnings and self employed profits. Everyone owes National Insurance Contributions (NICs) on their income from when they turn 16.
All National Insurance payments go directly to HMRC and are placed in a fund that the government uses to pay certain benefits including State Pension, maternity leave, sick pay and some unemployment benefits.
On this page you will find information about:
What is National Insurance?
National Insurance Contributions (NICs) are collected by HMRC. The amount of national insurance that you pay depends on how much you earn. National Insurance payments determine your entitlement to a State Pension, as well as certain other benefits.
National Insurance was introduced in the UK in 1911, as a scheme allowing workers to buy ‘stamps’ that entitled them to health, pension, and unemployment benefits. After the Second World War the National Insurance system became compulsory and was incorporated into the new Welfare State. Since 1975 National Insurance rates have been earnings-linked, meaning that a percentage of earnings is paid instead of a single flat amount.
National Insurance is only paid on earnings and certain benefits. It is not paid on income-generating assets such as savings or rental income.
Who pays National Insurance?
Employers pay National Insurance Contributions (NICs), as do employees and the self employed until they reach state pension age (65 years old). How much you pay depends on how much you earn.
If you are receiving Job Seekers Allowance your Class 1 NI Contributions are paid for you, which means that you will continue to build up your entitlement to a State Pension.
If you are earning a wage in the UK you should be given a National Insurance number (NI number). Many people receive this when they turn 16 years old, but if you arrive in the UK to work as an adult you will usually need to apply for one. Your NI number is used to record your National Insurance contributions, and you will need it to claim many of the different state benefits.
In some situations you can choose to continue making National Insurance Contributions even if you are not earning enough to require that you do so. This may apply if you are out of work and not claiming benefits, or if you are working overseas and want to continue building up your State Pension Entitlement.
What are the different types of National Insurance?
If you receive a wage from an employer, your Class 1 National Insurance contributions are usually deducted directly from your wages.
Do your National Insurance payments affect your Pension and Benefits?
Your own personal National Insurance contributions are used to determine your eligibility for certain benefits.
In most cases the actual amount of money that you have paid is not considered, what matters is that you have paid the full rate of National Insurance contributions for your earnings for a certain period of time. For example, the amount of money you receive for your State Pension depends on the National Insurance contributions you have made over your lifetime.
For men born after 1945 and women born after 1950, you will receive the full state pension if you have made 30 full years of NI contributions. People born before these dates usually need 44 years (for men) or 39 years (for women) of NI contributions to qualify for the full state pension. If you have paid National Insurance contributions for fewer years, the amount of State Pension you receive is reduced accordingly.
How much National Insurance should I pay?
The amount of National Insurance that you pay depends on how much you earn, and whether you are employed or self-employed.
Employers: If their employees’ monthly earnings are over £702. employers are obliged to make NICs of 13.8% of their employees income.
Employed: For Class 1 National Insurance you pay 12% of everything you earn between £702 and £3,863 per month and 2% on everything over that. Annually, this means 12% on income between £8,424 and £46,356 and 2% on anything extra. When we move into the 2019-20 tax year, this bracket changes to 12% on earnings from £8,632 to £50,000, with 2% on additional income.
Self employed: Pay Class 2 NICs and Class 4 NICs. Currently, Class 2 contributions must be paid if you make profits over £6,205 in the tax year. This costs £153.40 for the whole year, or £2,95 per week. Once profits are over £8,424, you must pay Class 4 NICs, which are payable at 9%. Profits exceeding £46,350 require a 2% NICs payment.
Both of these classes of National Insurance Contributions are set to rise in 2019-20. Class 2 NICs will be £3.00 per week on profits over £6,365. Class 4 NICs will be payable at 9% on any profits going over £8,632. Class 4 NICs rate won’t fall to 2% until your profits are more than £50,000.
If you are both employed and self employed, you may be liable to pay Class 1, Class 2 and Class 4 NICs, depending on how much you earn.
The amount you owe is calculated according to the information on your Self Assessment tax return. You should always check the calculation in case you have overpaid NICs and could be due a National Insurance refund.
Voluntary: Class 3 NICs are voluntary payments you can make if you have gaps in your National Insurance record, or you don’t meet the threshold for other classes. In 2018-19, Class 3 NICs cost £761.80 for the year. In 2019-20, this is going up to £780.
If you earn less than £8,424 per year, there is no deduction made for National Insurance. In some cases you may need to pay less National Insurance if you are on a certain kind of employee pension scheme. Likewise, if your self employed profits are less than £6,025, you are not liable for NICs. In both these circumstances, you may want to make voluntary Class 3 contributions in order to maintain your entitlement to a full State Pension.
For further Tax information, please follow the links below:
Income Tax includes:
What is income tax?
How is Income Tax calculated?
How much income tax do I need to pay?
Income Tax Allowances
Income Tax Rates and Taxable Bands
How do I pay income tax?
Tax Codes includes:
Where do I find my Tax Code?
New Tax Codes
What does my tax code mean?
Different Tax Codes
More than one job
Emergency Tax Codes
Emergency Tax Codes includes:
What is an Emergency Tax Code?
What does an emergency Tax Code look like?
Why do I have a BR/ Emergency Tax Code?
Can I get a Tax Refund if I have paid Emergency Tax?
Construction Industry Scheme includes:
CIS For Subcontractors
CIS For Contractors (Employers)
VAT (Value Added Tax) includes:
What is VAT?
When do I pay VAT?
How much VAT do I need to pay?
Do I need to register for VAT?
How do I pay VAT?
Can I claim VAT back?
Self Assessment includes:
What is Self Assessment?
Do I need to complete a Self Assessment tax return?
How do I get a Self Assessment tax return form?
How do I register for Self Assessment?
Can I register for Self Assessment on behalf of a company or trust?
What is a Unique Tax Reference number (UTR)?
How do I get a Unique Tax Reference (UTR) number?
How do I complete my Self Assessment tax return online?
Can I complete my Self Assessment tax return on paper?
Self Assessment Tax return deadlines
What if I submit my tax return late?
What if I submit my tax return incorrectly?
How is my tax calculated?
Do I need to check my tax calculation?
Pension Tax includes:
Do I have to pay tax on my pension?
Do I have to pay tax on my state pension?
Corporation Tax includes:
Who needs to pay Corporation Tax?
How much Corporation Tax do I need to pay?
How do I pay Corporation Tax?
Inheritance Tax includes:
What is Inheritance Tax?
Capital Gains Tax includes:
What is Capital Gains Tax?
For more information please see: