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).
Increase in NI contributions
From April 2022, National Insurance contributions were increased, for the year, by 1.25% to help increase government funding to help pay for the NHS and social care. From April 2023, however, this will be dropped but will instead be replaced by a permanent addition amount, categorised as The Social Care Levy.
In the Spring Statement 2022, Chancellor Rishi Sunak softened the blow for the rise in NI rates for lower wage earners, following the cost of living crisis, by increasing the NI threshold, (the amount an individual can earn before paying any National Insurance) by around £3,000 to £12,570 in line with the Income Tax threshold. This change, however, will be implemented from July 2022 and not at the start of the new tax year.
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 £190 per week, or,
- if you are self-employed and make a profit of over £6,725 per annum.
How is National Insurance collected?
Self-employed individuals will pay their National Insurance contributions partly through a fixed weekly amount (Class 2 NIC) and partly on a percentage of net profits above a certain threshold (Class 4 NIC). Both Class 2 and Class 4 are collected through Self Assessment. Employers also pay National Insurance contributions on behalf of their workers.
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 £190 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 – you do not have to pay if you earn less than £6,725 a year (but you can choose to pay 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 £9,881 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 2022 to 2023 tax year are:
|You pay||Class 1 National Insurance rate|
|£190 to £967 a week (£823 to £4,189 a month)||13.25%|
|Over £967 a week (£4,189 a month)||3.25%|
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 (link to payroll).
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.