What are National Insurance Contributions?​

Quick Answer:

National Insurance Contributions (NICs) are payments made by employees and self-employed workers to HMRC.  By paying National Insurance, you build entitlement to certain state benefits, including: The State Pension Maternity Allowance Employment and Support Allowance (ESA) Bereavement Support Payment Certain other contribution-based benefits  Most employees pay National Insurance automatically through PAYE, while self-employed people usually pay through Self Assessment.

What is National Insurance and why do we pay it?

National Insurance is a system of contributions collected by HMRC from workers and employers across the UK. 

Think of it as a contribution towards certain state benefits and your future State Pension entitlement. 

Most people start building their National Insurance record from the age of 16. As you work and earn income, contributions are usually deducted automatically. 

Although National Insurance and Income Tax often appear together on payslips, they're separate deductions and serve different purposes. 

By paying National Insurance Contributions, you can build eligibility for:

• The State Pension
• Maternity Allowance
• Certain unemployment-related benefits
• Bereavement benefits
• Some sickness and disability-related benefits 

For many people, their National Insurance record becomes particularly important when they approach retirement age and begin claiming their State Pension. 

What is a National Insurance Number?

Your National Insurance number is a unique reference used by HMRC to track your earnings, tax and National Insurance record throughout your life. 

Your National Insurance number stays with you permanently and helps ensure contributions are recorded against the correct individual. 

You'll need it when:

• Starting a new job
• Completing tax paperwork
• Registering for Self Assessment
• Claiming benefits
• Checking your State Pension record 

What are National Insurance contributions?

National Insurance Contributions, often shorted to NICs are the payments made into the National Insurance system. 

They way you pay depends on how you work.

If you're employed:

• Contributions are deducted automatically through PAYE.

If you're self-employed:

• Contributions are usually handled through self-assessment.

The amount you pay depends on:

• Your earnings
• Your employment status
• Your National Insurance category
• The class of NICs that applies to you

What types of National Insurance contributions are there?

There are four main classes of National Insurance Contributions. 

Class 1 National Insurance

Class 1 contributions are paid by most employees in the UK.

These are deducted automatically from your wages through the PAYE system before you're paid.

If you're employed, this is the type of National Insurance you'll usually see on your payslip.

You generally continue paying Class 1 NICs until you reach stage Pension age. 

Class 2 National Insurance

Historically, Class 2 NICs were paid by self-employed workers as a flat weekly contribution. 

However, significant changes were introduced from April 2024. 

Most self-employed people no longer need to pay mandatory Class 2 NICs. 

Instead, individuals with lower profits may choose to make voluntary contributions to protect their National Insurance record and maintain eligibility for certain benefits. 

Class 3 National Insurance

Class 3 contributions are voluntary payments. 

They're designed for people who have gaps in their National Insurance history and want to improve their entitlement to the State Pension or other benefits. 

You might consider Class 3 contributions if you've: 

• Spent time living abroad
• Had periods without employment
• Taken career breaks
• Had years with low earnings 

For many people approaching retirement, paying voluntary Class 3 NICs can significantly increase future pension income. 

Class 4 National Insurance

Class 4 NICs apply to many self-employed individuals. 

Unlike Class 2, these are based on profits rather than a flat weekly amount. 

If you're self-employed and your profits exceed certain thresholds, Class 4 contributions will usually be calculated automatically as part of your Self Assessment tax return. 

What National Insurance category am I?

Most employees fall into Category A, but there are several National Insurance categories depending on your circumstances. 

Common categories include: 

A: Most employees 

B: Married women and widows entitled to reduced contributions 

C: Employees over State Pension age 

J: Employees paying National Insurance elsewhere 

H: Apprentices under 25 

M: Employees under 21 

Z: Employees under 21 paying National Insurance elsewhere 

X: Employees who do not pay National Insurance 

Your category letter usually appears on your payslip. 

How much National Insurance do I pay?

National Insurance rates change periodically, so it's important to check the latest HMRC guidance. 

For employees, contributions are generally calculated as a percentage of earnings above the relevant thresholds. 

For self-employed workers, contributions depend on annual profits and are usually calculated through Self Assessment. 

The exact amount you pay will depend on:

• Your earnings
• Your employment status
• Your National Insurance category
• Current tax year rates 

National Insurance and PAYE

If you're employed, your National Insurance is usually handled automatically through PAYE. 

Your employer will:

• Calculate your contributions
• Deduct them from your wages
• Send them directly to HMRC 

This means most employees never need to make separate National Insurance payments themselves. 

You can usually see the deductions clearly on:

• Payslips
• P60s
• Payroll summaries 

National Insurance and Self-Assessment

If you're self-employed, National Insurance works differently. 

Instead of deductions being taken automatically through PAYE, your contributions are normally calculated when you complete your annual Self Assessment tax return. 

This means:

• You report your profits
• HMRC calculates your liabilities
• Any National Insurance due is included alongside your Income Tax bill 

This is one reason why keeping accurate records throughout the year is so important. 

What happens if I have gaps in my National Insurance record?

Many people don't realise that gaps in their National Insurance history can affect their future State Pension. 

Generally speaking, you need a certain number of qualifying years to receive the full new State Pension. 

Gaps can happen for various reasons:

• Living abroad
• Career breaks
• Low earnings
• Time out of work
• Self-employment with low profits 

The good news is that some gaps can be filled through voluntary Class 3 contributions. 

Before making voluntary payments, it's worth checking whether they'll genuinely improve your future entitlement. 

Do low earners still build National Insurance credits?

Sometimes, yes. 

Even if your earnings are below the level where National Insurance becomes payable, you may still receive National Insurance credits. 

These credits can help protect your entitlement to:

• The State Pension
• Certain benefits 

This means some people continue building their National Insurance record even when they're not actively paying contributions. 

Does National Insurance affect my tax refund?  

National Insurance and Income Tax are separate systems. 

Most tax refunds involve Income Tax rather than National Insurance. 

However, understanding your payslips, earnings and deductions can help identify situations where you've paid too much tax overall. 

This is particularly common if you've:

• Changed jobs
• Been on the wrong tax code
• Worked part of the year
• Had multiple employers 

You can check whether you could be owed money using our Tax Rebate Calculator. 

 

 National Insurance and CIS workers

If you're a subcontractor working under the Construction Industry Scheme (CIS), National Insurance can feel particularly confusing. 

CIS deductions are not the same thing as National Insurance. 

CIS deductions are advance payments towards:

• Income Tax
• National Insurance liabilities 

At the end of the tax year, everything is reconciled through your tax return. 

Learn more here: CIS Deductions Explained

National Insurance FAQs