If you live in the United Kingdom, you will likely have to pay UK National Insurance payments. But do you know what these monthly payments go towards? In this guide, we will examine National Insurance charges, how they work and why they are necessary.
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National Insurance is a type of tax on earnings and self-employed profits. You typically start paying when you turn sixteen and earn a specific amount. They are also known as NICs (National Insurance Contributions).
National Insurance payments decide whether you will qualify for certain benefits, such as Jobseeker’s allowance, Maternity Allowance and the State Pension.
As mentioned above, your National Insurance charges affect your State Pension. They effectively determine how much State Pension you will get when you retire. You need ten qualifying years of contributions to get any pension at all and at least 35 years of payments to receive the full pension amount.
Once you have your National Insurance number (NI Number) and earn an income, you will pay a set amount of National Insurance. This differs depending on how much you earn and whether you are self-employed.
You will pay Class 1 National Insurance payments if you have an employer. These rates change depending on salary brackets.
Here is a quick lowdown on the different classes with the recent changes vs the old rates:
|
Weekly Earnings |
National Insurance Rate From 6th Jan 2024 |
National Insurance Rate Before 5th Jan 2024 |
|
£0 to £241 |
0% |
0% |
|
£242 to £967 |
10% |
12% |
|
Over £967 |
2% |
2% |
As an employee, your National Insurance contributions are taken automatically through the Pay As You Earn (PAYE) system. You do not need to make any payments independently.
There are exceptions if you are deferring National Insurance (when you have more than one job) or if you are a married woman or widow (with a valid certificate of election).
National Insurance payments are different when self-employed, as you have a variable income. There are two classes (Class 2 and 4), and the one you are in depends on your profits.
When you are self-employed, you pay your National Insurance as part of your Self Assessment tax return.
If you earn between £0 and £12,570 per year, you will only need to pay Class 2 National Insurance. This is £3.45 per week and is a voluntary payment.
If your annual profits are between £12,571 and £50,270, you pay Class 2 and Class 4 NICs. Class 4 NICs are 9% of your profits within the mentioned bracket.
If you earn over £50,271, you pay Class 2 NICs and Class 4 payments. In this case, you pay 9% of profits between £12,571 and £50,270 and 2% on any profits over £50,271.
You can always work with a professional financial advisor or accountant if you are unsure which class relates to your income.
National Insurance payments are part of life while working in the UK. While they seem like an extra tax, it is important to remember that they are a positive contribution to your financial future and social benefits.
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