National Insurance (NI) is a tax on earnings. You pay it when you work and earn above certain limits. It also applies to profits if you run your own business.
National Insurance helps you qualify for several state benefits, as your contributions can support:
- The State Pension
- Maternity Allowance
- Jobseeker’s Allowance
- Bereavement Support Payment
- Employment and Support Allowance
As you can see, these benefits can provide support at different points in life. Moreover, the number of qualifying years you build up can affect how much State Pension you receive.
Who Needs to Pay National Insurance
You usually need to pay National Insurance if you are:
- Aged 16 or over
- Employed and earn more than £242 per week
- Self-employed and making profits over £12,570 per year
However, if you earn below these thresholds, you may not need to pay. Even so, you might still receive National Insurance credits.
These credits help protect your National Insurance record. As a result, you may still qualify for benefits even if you do not make payments.
How National Insurance Works
National Insurance works based on your earnings and employment status.
The following factors affect how much you pay and when you start paying:
- Your income level
- Your job type
- Your age
- Your residency status
Additionally, employers also contribute on behalf of their staff. This means both employees and employers support the system.
Furthermore, this system works alongside Income Tax. However, Income Tax serves a different purpose, as it funds public services.
Your National Insurance Number
Your National Insurance number is unique to you. You need this number to work in the UK and it ensures your contributions link correctly to your record.
It follows this format:
- Two letters
- Six numbers
- One final letter
For example: AB 12 34 56 C
You should store your number securely and only share it with trusted organisations, such as your employer or HMRC.
How You Pay National Insurance
The way you pay depends on how you earn your income. In most cases, the process happens automatically.
Employed
Your employer deducts National Insurance from your wages using the PAYE system. You can also see these deductions on your payslip. Moreover, your employer makes additional contributions which do not come from your pay.
Self-Employed
You pay National Insurance through your Self Assessment tax return. You pay it at the same time as your Income Tax. In some cases, you can arrange payments by Direct Debit.
National Insurance Classes
National Insurance has different classes. Each class depends on how you earn your income and your employment status.
| Class 1 | Paid by employees through wages |
| Class 1 (Secondary) | Paid by employers |
| Class 1A / 1B | Paid on employee benefits |
| Class 2 | No longer mandatory but voluntary payments remain available |
| Class 3 | Voluntary contributions to fill gaps |
| Class 4 | Paid by self-employed people on profits |
How Much You Actually Pay
The amount you pay depends on your earnings. Different rates apply depending on how much you earn above the following thresholds.
For employees:
- 8% on earnings between £242 and £967 per week
- 2% on earnings above £967 per week
For self-employed people:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
If you earn below the threshold, you may not pay anything. However, you could still receive credits. As previously stated, these credits help maintain your eligibility for the State Pension and other benefits.
Additionally, your payments may change if your income changes.
If You Stop Working
If you stop working, you can still protect your National Insurance record.
You could still receive credits if you:
- Care for someone
- Are ill or unable to work
- Claim certain benefits
Alternatively, you can make voluntary contributions to avoid gaps in your record.
When You Stop Paying
You pay National Insurance until you reach State Pension age.
After this, you no longer pay contributions. This applies even if you continue working or start a new business. However, you may still pay Income Tax if your earnings remain above the allowance.
Getting a Refund
You can claim a refund if you pay too much National Insurance.
This can happen if:
- You have more than one job
- You continue paying after retirement age
- You overpay by mistake
You can apply for a refund through HMRC. In some cases, HMRC may also correct errors automatically.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.