What are National Insurance Contributions?​

What is National Insurance and Why Do We Pay It?

When you reach the age of 16 you will be given a National Insurance card and unique number and will start paying National Insurance contributions if you are:

Employed and earning more than £184 per week

or

Self-employed and making a profit of £6,515 or more per year

By paying National Insurance contributions, you will qualify for the State Pension and other benefits.

What are National Insurance Contributions?

National Insurance Contributions (NICs) are payments taken by HMRC from your Pay As You Earn (PAYE) earnings, or from your business profits if you’re self-employed. They’re taken on top of other taxes like Income Tax, and go toward things like the State Pension and various benefits.

What kinds of National Insurance Contributions are there?

National Insurance Contributions come in 4 basic types. Depending on your work and other circumstances, you may have to pay more than one type:

Class 1 NICs

These are the National Insurance Contributions paid by most UK employees. They’re taken automatically from your earnings by your employer, through the PAYE system. You keep paying Class 1 NICs until you hit the State Pension age.

Class 2 NICs
Self-employed people don’t generally use the PAYE system to pay their tax. Instead, they file Self Assessment tax returns each year to tell the taxman about their profits and business expenses. Since they don’t have an employer, they pay Class 2 NICs rather than Class 1, which are handled through the Self Assessment system.

Class 3 NICs
If you’ve got gaps in your National Insurance history, you can make voluntary NIC payments to plug them. These voluntary payments are called Class 3 NICs. They can make good sense if you’re looking to make sure you qualify for things like the maximum State Pension rate.

Class 4 NICs
Class 4 National Insurance Contributions are another kind of payment made by the self-employed. If your profits from self-employment are high enough, you pay Class 4 NICs as well as Class 2.

Things get slightly more complicated if you’ve got more than one kind of income. Employees who also have some self-employment income will find themselves paying Class 1 NICs through the PAYE system and Class 2 NICs through Self Assessment. If their self-employment profits are high enough, they’ll pay Class 4 NICs as well.

What are the Employee National Insurance rates?


The rates for National Insurance Contributions depend on the class you’re paying. The rates your employer will deduct from your pay for the 2021/22 tax year for England and NI are:

Class

Gross Yearly Earnings (before tax or pension deductions) Rate For 2022 - 2023 Tax Year from April 2022
1 Less than £9,568 0% 0%
  £9,568 to £50,270 12% 13.25%
  More than £50,270 2% 3.25%
2 and 4 Less than £6,515 0%  
  £6,515 to £9,568 £3.05 per week  
  £9,568 to £50,270 9% + £3.05 per week 10.25%
  More than £50,270 2% + £3.05 per week 3.25%

 

Example

If you have an employer and pay Class 1 National Insurance contributions and earn £18,000 per year before tax and pension deductions, you'll pay:

  • £0 on the first £9,568
  • 12% (£1,011.84) on your earnings between £9,568 to £50,270 (£8,432 in this example)
  • This means your NI payment will be £1,011.84 for the year / £84.32 per month. This will increase to £1,075.90 / £89.65 from April 2022.

When do I start paying National Insurance Contributions?

National Insurance Contributions don’t kick in from the very first penny you earn. In fact, if you’re under 16 you won’t pay them at all.

If you’re over 16:
• For employed people, weekly income up to £184 won’t count toward your Class 1 NICs.
• For the self-employed, yearly profits of up to £6,515 won’t count toward your Class 4 NICs.

Keep in mind earning too little to pay National Insurance Contributions won’t necessarily mean you end up with holes in your record. If you’re earning under £184 a week from employment, for instance, you count as having paid your NICs. Basically, you’ve got some automatic protection built into the system.

If you’re self-employed, but your profits are too low to pay Class 2 NICs, you can still make voluntary Class 2 payments. This can be important in making sure you still qualify for certain benefits.

Another thing to keep in mind is that your earnings don’t get “averaged out” when your National Insurance Contributions are calculated. For instance, if you earn enough in one week to pay Class 1 NICs, you won’t get that cash back just because you earn less the next week, or for the rest of the year.

Have more questions?

Get in touch

National Insurance can be a complicated thing to deal with if you’re not a tax expert. Get in touch with RIFT with any questions or worries you have about NICs, or your tax situation in general. We’re the UK’s top tax specialists, so you’re always better off with RIFT.

Need more help?

Wondering if you can claim a tax refund or need to submit a tax return? Use our online tools to find out if you're owed money by HMRC.

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