National insurance or National insurance contributions (NIC) is a tax in the UK which both employees and employers pay. You must pay it if you fall under certain conditions, though, you can also make it voluntarily — to lay the ground for future benefits. The sum you are to pay depends on the class you qualify for and how much you earn. You pay NIC to get access to some state benefits, including retirement pensions. In this article we look into NIC in detail, but if you still need help after reading it, we can offer our accounting services.
Who pays national insurance contributions?
So, it is your obligation to pay national insurance contributions if you meet certain age and profit thresholds. First, if you are 16 years old or over. If you are an employee and earn more than £166 a week — HMRC will wait for you to collect the tax. If you are 16 and over and self-employed — you threshold for starting to pay NIC is a profit of £6,365 or more a year.
National insurance number
To pay your national insurance contributions to HMRC, you need to get a national insurance number (NINO). You either receive it automatically when you are 16 (if there were any child benefits for you and HMRC already generated it for you) or you need to apply for it yourself. If you are coming into the country and have a right to work, you have a right (and, actually, need) to have a NINO.
A NINO is a unique number, which is made up of 2 letters, 6 numbers and another letter. Here is an example of a NINO: QA123456B. You can carry out national insurance number check in your Personal Tax Account. You can also find you NINO on your payslip, P60 or any letters you get from the authorities about your tax/pension/benefits.
You need to provide your national insurance number when you deal with certain organisations and institutions. Here are those that are likely to ask you for it:
- Your employer or your pensions provider
- The Department for Work and Pensions
- Your local council if you claim for benefits
- Financial service providers, who help you buy and sell, for example, shares
National insurance classes & rates
There are several groups everyone paying NIC are divided into — depending on the way you work (if you are either an employee or self-employed) and the need to pay NIC (whether you are required to pay it by law or want to do it voluntarily). The rates for NIC are also specific for the group you are in.
Class 1 NIC are paid if you are an employee. It is the employer who takes the NIC off the salary before paying it to you. There is a threshold (known as the primary threshold) and if your income falls below it — you do not need to pay NIC. For years 2019/2020 this threshold is £166 a week or £719 a month — Class 1 NIC is calculated either by week or by month, depending on how often you get your salary.
Weekly rates for 2019/2020 will be the following:
- On the first £166 — Nil
- On income between £166 and £962 — 12%
- On amount above £962 — 2%
The corresponding weekly rates will be:
- On the first £719 — Nil
- On income between £719 and £4,167 — 12%
- On amount above £4,167 — 2%
Class 2 NIC are paid if you are self-employed. How much you pay depends on the earnings thresholds. You can check out how it works in detail in our guide on taxes for UK business owners. Most importantly, if you earn less than £6,365, you will pay no NIC — unless you decide to do it voluntarily. Class 4 NIC are also about sole traders. You pay them if you get £8,632 a year or more — in addition to Class 2 NIC.
|Yearly Income||NIC Class Applied|
|£6,365—£8,632||Class 2: £3 a week (£156 a year)|
|£8,632—£50,000||Class 2: £3 a week (£156 a year); Class 4: 9% on £8,632—£50,000 & 2% on profits over £50,000|
You will be qualified as a person paying Class 3 NIC if you do not fall under Class 1 or 2, but still want to pay NIC, voluntarily. These payments are done if you want to protect your right for state benefits. Here is how to pay Class 3 NIC.
National insurance category letters
You as an employer, you need to assign a category letter when you give payslips to your employees (or let an online bookkeeping service do it for you) — depending on what group a particular employee falls under. Most of the employees have a letter “A” if they are not in the following groups:
B is for married women and widows, who pay reduced National Insurance
C is for employees who are over the state pension age
J is for employees who can defer National Insurance because they pay the NIC in another job
H is for apprentices who are under 25 years old
M is for employees under 21 years old
Z is for employees who are under 21 years old and can defer the contributions as they pay them in another job
National insurance status
The UK government has an online tool, aimed at clearing up for you any questions on your NIC payment status. Once you log in, it reveals the records of:
- What you have paid — up to the start of the current tax year
- Any National Insurance credits you have got
- Any years that you do not count for your State Pension
- Whether you can make voluntary contributions to pay for what you have missed to pay and how much it will cost you
We remind you that you can register your company in the UK with us. Our experts will guide you all the way!