National Insurance Contributions: All you need to Know

What are National Insurance Classes?

There are many different ways through which workers make contributions to National Insurance. It depends on how they are employed and what they are earning. These categories are called as ‘classes’.

As per below table, there are different National Insurance classes which includes who are required to pay what and the procedure of getting payment collected.

National Insurance Classes

Who pay these? Procedure of getting payment collected
Class 1 Employees who earn more than £157 a week under state pension age PAYE (directly deducted by your employer)
Class 1A or 1B Employers pay these on employee benefits or expenses Paid to HMRC
Class 2 Self-employed people who earn more than £6,025 a year Paid through self-assessment
Class 3 Voluntary contributions –anybody who wish to fill gaps in their National Insurance Record Paid to HMRC via form CF83
Class 4 Self-employed people who earn more than £8,164 a year (in addition to Class 2) Paid through self-assessment

 

National Insurance contributions for Employees

Class 1 contributions are made by employees and most agency workers which are collected via PAYE together with their income tax.

In 2018-19, you’ll be paying 12% of anything you’re earning between £702 and £3,863 per month, and 2% on anything higher.

That approximately means you’ll be paying 12% on earnings exceeding £8,424 and £46,356, and 2% on anything more.

National Insurance Contributions
National Insurance Contributions

But because on monthly basis NI is calculated, you could end up paying extra on irregular income such as bonuses.

Above this, contributions on workers’ income are also made by employers, usually of 13.8% of earnings exceeding £702 per month.

Self-employed National Insurance Contributions

If you’re self-employed, you usually pay Class 2 National Insurance contributions along with Class 4 NICs as well.

If you’re earning more than £6,205 profits per year you’ll be owing Class 2 contributions, which usually charge at £2.95 per week, or £153.40 for the year.

Class 4 contributions on profits are also required to be paid by you on profits exceeding £8,424 per year at 9%.

This rates drops down to 2% on profits exceeding £46,350 per year, similarly to Class 1 contributions for employees.

Voluntary Class 3 Contributions

You can also pay Class 3 National Insurance contributions voluntarily. You may consider to do this if you’re having gaps in your record from preceding years.

These will going to cost you £14.65 per week in 2018-19, or £761.80 for the year.

Student National Insurance Contributions

If you are not over 16 years old, you don’t need to pay National Insurance. Students older than this are not exempted. If their earnings are sufficient, they are required to pay like any other worker.

If students don’t work on paid basis, they are not credited with NICs for the years they study.

This forms a ‘gap’ in their contributions record, although many will still work for sufficient years after getting entitled to merit a full state pension.

Low earners and National Insurance

You are not required to pay National insurance if you’re earning below a specified amount. In 2018-19, it is £8,424 as against £8,164 in 2017-18.

The same is applicable if your profits are very low in case of self-employed i.e. below £6,025 in 2017-18.

But you should prefer making voluntary Class 3 contributions, as extended gaps in your records may prevent you of certain benefits.

National Insurance Credits

National Insurance Contributions
National Insurance Contributions

If you don’t pay National Insurance, there can be gaps in your contributions record. But in many instances, you’ll be credited with HMRC contributions.

National Insurance credits can make you eligible for specific contributory benefits, such as basic state pension, and payments if you are unable to work due to illness or unemployed.

National Insurance in Retirement

Once you reach the state pension age such as 65 years for men and 65 years for women by November 2018, you are not required to pay National Insurance and also if you continue working beyond this.

On reaching this age, you can take certain steps for reaching on top-up your state pension, if you haven’t attained the full 35 years’ contributions for earning the maximum.

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