National Insurance, or NI for short, is a tax on earnings that funds various State Benefits. Employees, the self-employed and employers all contribute based on income levels. Unlike Income Tax, NI directly supports benefits that people may need throughout their lives, such as pension payments and jobseeker’s support.
Your NI contributions build your National Insurance record, which determines your eligibility for benefits like the State Pension. The number of qualifying years you accumulate affects how much pension you receive upon retirement.
Who Needs to Pay National Insurance?
You must pay National Insurance if you are:
- Aged 16 or older
- Employed and earning more than £242 per week
- Self-employed and making a profit of more than £12,570 per year
If you earn between £123 and £242 per week, you do not pay National Insurance, but your contributions will count towards your record. In some cases, you may qualify for National Insurance credits, which help maintain your record even if you are not working.
National Insurance Classes
National Insurance Contributions fall into different categories known as “classes”. The class you pay depends on your employment status and earnings.
Employees
- Class 1 – Payable if you earn over £242 per week and your employer will deduct it from your wages
Self-Employer Workers
- Class 2 – If your profits are £6,725 or more and HMRC treats the contributions as paid (Not Longer Available as of April 2024)
- Class 4 – Payable on profits over £12,570 per year
Those Not Working or on a Low Income
- Class 3 – Voluntary contributions that help fill gaps in your record, ensuring you qualify for benefits such as the State Pension
Voluntary contributions can be very useful if you take time off work, live abroad or have gaps in your National Insurance record.
How Much National Insurance Do You Pay?
For the 2024/25 tax year, the rates are:
Employees (Class 1)
- 8% on earnings between £242 and £967 per week
- 2% on earnings over £967 per week
Self-Employed (Class 4)
- 6% on profits between £12,570 and £50,270
- 2% on profits over £50,270
The UK Government abolished Class 2 contributions in April 2024, but National Insurance credits still apply to protect your record. If you are self-employed and earn below the threshold, you may still qualify for State Benefits through these credits.
How to Pay National Insurance
Employed – Your employer will automatically deduct contributions from your wages through the PAYE system
Self-Employed – You must pay contributions through your Self Assessment tax return.
Gap in Contributions – You can make voluntary Class 3 payments to protect your record
Employers also make separate contributions on behalf of their employees, which also helps fund benefits and State Pensions.
When Do You Stop Paying?
You stop paying Class 1 contributions when you reach State Pension age. However, if you are self-employed, you stop paying Class 4 contributions at the start of the tax year after reaching State Pension age.
If you continue working beyond retirement age, you will not need to pay National Insurance, but you may still be liable for Income Tax on your earnings.
What If You Pay Too Much?
If you believe you have overpaid National Insurance, you can apply for a refund through HMRC. Overpayments can occur if you:
- Have multiple jobs
- Were mistakenly charged after reaching State Pension age
- Paid contributions when you were not required to
If you have overpaid due to working multiple jobs, HMRC may adjust your tax code or issue a refund at the end of the tax year.
National Insurance Number
Your National Insurance Number is a unique identifier which ensures that HMRC record your contributions correctly. It consists of two letters, six numbers and a final letter. For example: AB 12 34 56 C
- It appears on payslips, tax documents and your personal tax account
- You should receive your NI number automatically if you are 16, but you can apply online if you have never had one
- You should only share it with trusted sources, like your employer or HMRC
If you lose your NI number, you can retrieve it through HMRC’s online portal.
National Insurance Credits
If you are unable to work, you may qualify for National Insurance credits. These credits protect your record so you don’t miss out on benefits. You may be eligible if you:
- Are on maternity leave
- Are a carer
- Are unemployed but actively seeking work
- Are receiving sickness benefits
These credits help ensure that even if you are not contributions, your record remains up to date, allowing you to qualify for the State Pension and other benefits.
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