What is National Insurance?
National Insurance (NI) is a component of the UK’s welfare system, designed to fund various State Benefits, like the State Pension. Employees and employers make National Insurance Contributions (NICs) to qualify for the aforementioned State Benefits.
A unique National Insurance number records NICs for each individual and ensures accurate maintenance of payment records.
NI Payments
- Employees: If you are 16 or over and earn more than £242 per week from one job, you must make NICs. Your employer will deduct these contributions directly from your wages.
- Self-Employed: You must make NICs if your annual profits exceed £12,570. You do not need to pay NICs if your profits are between £6,725 and £12,570, although your contributions are treated as paid to protect your NI record. You typically pay these contributions through Self Assessment, depending on your profits.
National Insurance Classes
There are several classes of NI, depending on your employment status:
- Class 1: Paid by employees earning more than £242 a week. Contributions stop when you reach the State Pension age.
- Class 2: Paid by self-employed individuals for protection of their NI record if annual profits are between £6,725 and £12,570.
- Class 4: Paid by self-employed individuals if their profits exceed £12.570. Contributions stop from the start of the tax year after reaching the State Pension age.
- Class 3: Paid voluntarily. Useful for filling gaps in a NI record if not working or have lower earnings.
Benefits of Paying NI
Paying into the National Insurance system enables to qualify for various benefits, depending on the class of contributions you make:
- State Pension: All classes contribute towards eligibility for the State Pension.
- Employment Support: Class 1 and some cases of Class 2 contributions count towards benefits like Jobseeker’s Allowance and Employment and Support Allowance.
- Maternity and Bereavement: Various classes provide eligibility for maternity allowances and bereavement support.
Keeping Your National Insurance Number Safe
Your National Insurance Number is crucial for recording your contributions correctly. Keep it secure and share it only when absolutely necessary, such as with your employer or for tax purposes.
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