Navigating National Insurance contributions – what do you need to know?

The UK’s National Insurance system is a basis of the welfare state, funding a range of public services from the National Health Service (NHS) to unemployment benefits.  

If you are new to the working world, self-employed or just want to understand where your money is going, it can seem like a labyrinth of codes and percentages.  

What is National Insurance? 

National Insurance is essentially a tax, albeit one allocated for specific public services.  

Introduced in 1911, it has undergone numerous modifications, but its primary purpose remains the same: to fund a variety of state benefits including the NHS, pensions and unemployment benefits.  

Who pays National Insurance? 

If you are 16 or over and are either an employee earning above £242 per week from one job or are self-employed and making a profit of more than £12,570, you are eligible to pay mandatory National Insurance Contributions (NICs) 

Employees  

If you are an employee, you pay Class 1 NICS on your earnings. The rate depends on how much you earn:  

• 12 per cent on earnings between £242 and £967 a week (£1,048 to £4,189 a month) 
• 2 per cent on any amount above £967 a week (£4,189 a month) 

Self-employed  

If you are a self-employed individual and your profits are £12,750 or more a year, you usually will pay Class 2 and Class 4 National Insurance rates:  

• Class 2 – A flat rate of £3.45 a week 

• Class 4 – Nine per cent on profits between £12750 and £50,270 or 2 per cent on profits over £50,270 

How do you pay NICs?  

PAYE 

For employees, NICs are usually deducted automatically from wages through the Pay As You Earn (PAYE) system.  

Self Assessment  

If you are self-employed, most people pay their Class 2 and Class 4 NICs through Self Assessment.  

The importance of your National Insurance number 

Your National Insurance number is a unique identifier that ensures all your contributions are recorded against your name.  

It is crucial to keep this number safe and to provide it to your employer when you start a new job. 

Benefits of paying NICs 

Paying NICs entitles you to various state benefits:  

• State Pension  
• NHS healthcare  
• Maternity Allowance  
• Jobseeker’s Allowance  

• Employment and Support Allowance 

Understanding NICs is essential for anyone earning income in the UK. It is not just a tax, it is your ticket to an array of public services and benefits.  

It is crucial to keep up to date with NICs, and if you are ever in doubt, seek advice from an accountant.  

If you would like any further advice on your NICs, please get in touch today.