National Insurance is mandatory in the UK; it pays for certain benefits and the state pension. Whether you are employed or self-employed, our guide will give you the ins and outs
What is National Insurance?
National Insurance Contribution is a tax on earnings paid by employees and employers. Whether you have a job or are self-employed, it can help you get benefits like the State Pension and Maternity Allowance.
National Insurance classes
Your employment status and income determine the class you pay for.
The table below explains each class according to your employment status and earnings
| National Insurance Class | Employment Status |
|---|---|
| Class 1 | Your employer will automatically deduct your pay if you earn more than £242 a week and are under State Pension age. |
| Class 1A or 1B | Employers directly fund these through employee expenses or benefits |
| Class 2 | Self-employed persons with yearly profits of at least £6,725 or more. If your income is below this amount, you may choose to make voluntary payments to close or prevent gaps in your National Insurance record. |
| Class 2 | You may make voluntary contributions to fix or prevent gaps in your National Insurance record. |
| Class 4 | Self-employed individuals making £11,909 or more in annual earnings |
The Benefits of NI Contributions
The following table shows each National insurance class and benefits.
| Class 1 | Class 2 | Class 3 | |
|---|---|---|---|
| Basic State Pension |  | | |
| Additional State Pension | |  | |
| New State Pension | | | |
| Contribution-based Jobseeker’s Allowance | | | |
| Contribution-based Employment and Support Allowance | | | |
| Maternity Allowance | | | |
| Bereavement Support Payment | | | |
Is National Insurance Mandatory?
You must pay National Insurance if you are 16 or older and:
- You must pay National Insurance if you are 16 or older and:
- You make a profit of £6,725 or more as a self-employed individual
When do I stop paying
- You stop paying Class 1 and Class 2 NI at the state pension age.
- Class 4 NI contributions stop on April 6 after the state pension age.
Who can get an NI number
You can request a National Insurance number if:
- UK-based
- have UK work rights
- working, seeking a job, or offered work
Good to know
- If you can verify your UK work eligibility, you may start working before receiving your National Insurance number
- Even if your personal information changes, you don’t have to get a new National Insurance number if you already have one. Your Social Security number remains the same for the rest of your life.
How do I apply
You will need to apply for a National Insurance number to ensure all contributions made are recorded against your name
Can’t find your NI number? You can find it( lost national insurance number)
Does My NI number ever change?
It never changes and is composed of letters and numbers.
Where can I find my NI number?
Your National Insurance number may be found here:
- Payslips
- Your P60
- Letters related to tax
- Pensions or benefits
- On your tax account
How much NI do you pay?
Your employment status and income determine the amount you pay.
| Class | Income | National insurance rate | How to pay |
|---|---|---|---|
| 1 | £242 to £967 a week (£1,048 to £4,189 a month) | 13.25% | With your taxes, you pay National Insurance. Your boss will take it out of your pay before they pay you, and your contributions will be listed on your pay slip |
| 1 | Over £967 a week (£4,189 a month) | 3.25% | With your taxes, you pay National Insurance. Your boss will take it out of your pay before they pay you, and your contributions will be listed on your pay slip |
| 2 | Depends on profits | – | Contributions are made via your self-assessment |
| 4 | Depends on profits | – | Contributions are made via your self-assessment |
Need help with your self-assessment? Speak to one of our specialists
Employed & Self-Employed
If you are employed and do some self-employed work too, the following will happen
- Class 1 will be deducted by your employer
- Class 2 or class 4 would then be paid on all self-employed work
From April 6, 2022, to April 5, 2023, NI contributions go up by 1.25 per cent due to the health and social levy
The increase applies to:
- Class 1
- Class 1A and 1B
- Class 4
Late NI Payments
The HMRC will impose penalties if you do not pay your National Insurance on time. The penalty is 5% for each period missed, therefore ranging from 5%-15%.
If your payment is 30 days late
- If the total amount is not paid within 30 days of the due date, there will be a 5% penalty.
If your payment is 60 days late
- If the whole balance is not paid within six months of the due date, there will be an extra 5% penalty.
If your payment is 12 months late
- If the whole amount is not paid within 12 months of the due date, there will be an additional 5% penalty.
Need to check your record?
You can view your National Insurance record online and be able to see:
- All contributions for the current tax year
- Any credits obtained
- Any gaps in contribution
- The amount payable to fill gaps
Conclusion
The importance of making national insurance contributions cannot be stressed enough. Not only do you avoid any penalties for late payment, but you also ensure that you do not create any gaps in your record and therefore miss out on all the benefits of making these contributions.
Pearl Accountants is a team of specialists that have many years of experience. Should you have any questions or accounting needs, we would be happy to assist; get in touch today!
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.
