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National Insurance contributions

Learn about different types of National Insurance contributions (NICs), how to find out how much you’ve paid and when you can claim National Insurance credits.

What are National Insurance contributions?

National Insurance is the UK tax system into which employees and employers pay National Insurance contributions (NICs). National Insurance pays for state benefits, which provide those who qualify with an income if they’re sick, injured or unemployed. National Insurance contributions (NICs) fund the state pension, which can be claimed when people reach statutory retirement age.

The class of National Insurance contribution (NIC) that you pay is determined by your employment status, how much you earn and whether there are any gaps in your National Insurance record (see section 4).

For 2019/20, you’ll pay National Insurance if you’re more than 16 years old and either:

  • an employee earning more than £166 a week or
  • self-employed and generating a profit of £6,365 or more a year.

What types of National Insurance contributions (NICs) are there?

 

  • Class 1 NICs
    Employees below state pension age earning more than £166* a week pay these (*2019/20 tax year). Employers deduct them automatically from earnings before paying their staff.
  • Class 1A or 1B NICs    
    These are payable by employers for expenses or benefits given to their employees.
  • Class 2 NICs
    Self-employed people who earn more than £6,365* a year must pay these, but you can choose to pay voluntary contributions if you earn less (*2018/19 tax year).
  • Class 3 NICs  
    These are voluntary contributions you can pay to cover or avoid gaps in your National Insurance record.
  • Class 4 NICs
    Self-employed people earning profits of more than £8,632* a year pay these (*2018/19 tax year).

What are the current National Insurance contribution (NIC) rates?

Assuming that the employee has the National Insurance category letter A (as most do), the Class 1 National Insurance contributions (NICs) due for the 2019/20 tax year is:

  • 12% if they earn £166-£962 a week (or £719-£4,167 a month)
  • 2% over £962 a week (or £4,167 a month).

Payments are lower for married women or widows with a valid ‘certificate of election’ or for those who defer National Insurance because they have more than one job.

Employers also pay towards employees’ National Insurance. However, for the 2019/20 tax year, if an employee (with NI category letter A) earns £118-£166 a week (or £512-£719 a month), their employer does not have to pay anything. However, they must pay 13.8% on earnings of £166.01 or more a week (£719.01 a month).

Employers pay Class 1A and 1B National Insurance contributions (NICs) on expenses and benefits they give to their employees. The rate for the 2019/20 tax year is 13.8%.

If you’re self-employed and earn profits of £6,365 or more a year, you must pay Class 2 National Insurance contributions (NICs) of £3 a week.

If your profits are £8,632 or more a year, you will pay Class 4 National Insurance contributions (NICs) of:

  • 9% on profits between £8,632-£50,000
  • 2% on profits over £50,000

Sole traders pay Class 2 and Class 4 National Insurance contributions (NICs).

How do I pay National Insurance contributions (NICs)?

Employers deduct Class 1 National Insurance contributions (NICs) directly from staff earnings before paying their wages. They must pay them to HMRC.

Once a year, in one amount, employers pay HMRC Class 1A or 1B National Insurance contributions (NICs) on any expenses or benefits given to employees.

Most self-employed people pay their Class 2 and Class 4 National Insurance contributions (NICs) through Self Assessment.

There are many ways to pay Class 3 National Insurance contributions (ie voluntary contributions to cover NI record gaps) including:

  • monthly Direct Debit
  • quarterly bill with an online payment or telephone banking
  • CHAPS
  • in person at your bank
  • Bacs
  • cheque sent by post to HMRC.

Company directors are classed as employees and pay National Insurance contributions (NICs) on salary and bonuses over £8,632. Contributions are worked out from annual earnings rather than earnings in each pay period.

What are National Insurance credits?

If you’re not receiving a wage because you’re ill or you’re unemployed and therefore cannot pay National Insurance contributions (NICs) in either case, you may be able to get National Insurance credits.

National Insurance credits can fill gaps in your National Insurance contributions record and therefore enable you to claim certain benefits if you’re just short of qualification requirements. 

If you’re eligible, there are two types of National Insurance credits:

  • Class 1 – which count towards your state pension and can enable you to claim other benefits (eg contribution-based Jobseeker’s Allowance) and
  • Class 3 – which only count towards your state pension.

You can visit government website gov.uk to find out if you’re eligible for National Insurance credits (if you don’t get them automatically, you’ll have to apply for them). You can also check your National Insurance record to find out if you have any National Insurance credits.

You can also find out if your National Insurance record has any gaps online. Alternatively, you can telephone 0300 200 3500 (Monday to Friday: 8am to 8pm; Saturday: 8am to 4pm) to discuss gaps in your National Insurance contributions. Make sure you know your National Insurance number.

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