What is National Insurance (NI)?
National Insurance became law with the introduction of the National Insurance Act 1911. National Insurance contributions are paid by UK workers and employers in order to fund state benefits such as State Pension and other benefits including the National Health System (NHS).
Who pays National Insurance contributions?
You will pay National Insurance contributions if you are:
- aged 16 years or older, provided you earn in excess of £242 per week, or,
- if you are self-employed and make a profit of over £12,570 per annum.
How is National Insurance collected?
Self-employed individuals will pay their National Insurance contributions partly through a fixed weekly Self-employed individuals from 6 April 2024 will no longer have to pay a fixed weekly amount (Class 2 NIC) and will simply pay on a percentage of net profits above a certain threshold (Class 4 NIC). Those with profits under £6,725 can choose to pay Class 2 NIC voluntarily to get access to contributory benefits including the state pension. Class 2 and Class 4 NIC are collected through Self Assessment. For employed people, employees and employers, on behalf of their workers, both pay National Insurance contributions through their payroll.
What are The Different National Insurance Classes?
There are different classes for NI known as classes. The class you pay depends on your employment status, on how much you earn, and whether you have any gaps in your National Insurance record.
| National Insurance class | Who pays? |
| Class 1 | Employees earning more than £242 a week and under State Pension age – they’re automatically deducted by your employer |
| Class 1A or 1B | Employers pay these directly on their employee’s expenses or benefits |
| Class 2 | Self-employed people – nothing is payable unless those with profits under £6,725 a year wish to make voluntary contributions |
| Class 3 | Voluntary contributions – you can pay them to fill or avoid gaps in your National Insurance record |
| Class 4 | Self-employed people earning profits over £12,570 pre more per annum |
When do you stop paying National Insurance?
If you are employed you will stop paying Class 1 NI when you reach the State Pension age.
If you are self employed you will stop paying:
| Class 2 NI | State Pension age |
| Class 4 NI | From 6 April (new tax year) after you reach State Pension age |
How we can help
Are you on the right code?
The first thing we will check is whether you are paying the correct amount of NI and whether your coding is correct.
How much should you pay?
If you’re employed
If you are employed you will pay Class 1 National Insurance contributions. The rates for most people for the 2024 to 2025 tax year are:
| You pay | Class 1 National Insurance rate |
| £242 to £967 a week | 8% |
| Over £967 a week | 2% |
However, you will pay less if:
- you’re a married woman or widow with a valid ‘certificate of election’
- you’re deferring National Insurance because you’ve got more than one job
- there are also different rates for some people such as a director of a limited company, a landlord running a property business and share fisherman
Tax rates for other years can be viewed here
Help for employers
Employers pay a different rate of NI depending on their employees’ category letters. However, working out your employer contributions can be confusing.
Our tax teams will ensure you are paying the correct deductions through your payroll and can explain which benefits attract Class 1A NI contributions (NICs). They will ensure you understand the current legislation so that you always remain compliant.
Our payroll services
The changes to legislation in the last few years including Real-Time Information and Auto enrolment have made managing payroll much more difficult than it used to be. Should you be struggling then speak to one of our payroll teams who can advise you on ad-hoc basis or provide you with ongoing support. Our payroll service has been designed with flexibility in mind. Simply put, there is an option to suit each client’s needs. We are on hand to do as much, or as little payroll support as you need. Details of our payroll service can be viewed here.
Still confused about National Insurance?
Whether you are employed, self-employed or an employer, we can assist you in all areas of national insurance compliance and advise on the scope of national insurance for specific transactions.
Contact your local MFW office for a free initial consultation.
