National Insurance is one of the most important aspects of a functioning society. Just as we use tax to fund essential public services that we all depend on - from the police force to the courts of law - National Insurance is there to protect us when we're most vulnerable.
We'll all get old one day and be unable to work, and National Insurance will fund the state pension that will continue to feed and clothe you.
If you ever start your own family and go on maternity leave, or you're out of work and need to claim contribution-based Jobseekers allowance, National Insurance will pay for this. We pay it now so that others can use it, and others will pay for us when we need it.
In this article, we're going to explore all the details of National Insurance, including who has to pay it, and where your National Insurance contributions go.
National Insurance is a tax on your earnings, including salary and self-employed profits, that gets added to the National Insurance Fund, and helps pay for certain benefits, including the state pension, statutory sick pay and maternity leave.
The amount of National Insurance you'll have to pay depends on a wide range of factors, including how old you are, how much you earn per week, whether you're employed or not, and whether you get certain benefits.
Let's dive right in, and explore how National Insurance works, how much National Insurance you have to pay, and whether you can get credits towards National Insurance if you're not working.
Who pays National Insurance?
Everyone who is 16 or over and is an employee earning more than £183 a week, or self-employed and making a profit of £6,475 per tax year has to pay national insurance.
If you are an employee, you’ll only have to pay National Insurance on earnings over £8,632 per year. So if you earn less than £8,632 each year then you will not have to make National Insurance contributions.
If you're an employer, you'll also have to pay National Insurance, as well as be responsible for deducting your employees' National Insurance Contributions from their wages and paying it to HMRC.
Everyone’s contributions are added into one National Insurance fund. That fund is then used to pay towards the benefits of everyone that contributes.
National Insurance was created to offer a ‘safety-net’ for those that fall on hard times.
You’ll stop paying National Insurance once you reach the state pension age.
Sometimes, you may want to make voluntary National Insurance payments.
For example, if you were unemployed and not claiming benefits or employed without earning much, you may have gaps in your National Insurance record, that can affect whether you get the full state pension in the UK.
You can make voluntary National Insurance payments to fill these gaps, and increase your likelihood of qualifying for the state pension and other state benefits.
How much National Insurance do I have to pay?
How much National Insurance you have to pay depends on how much you earn, and what type of job you have, for example, whether you are employed or self-employed.
National Insurance is divided into classes, where you'll pay a different rate depending on which class your employment belongs to.
National Insurance is generally calculated on a weekly or monthly basis, depending on whether you are paid weekly or monthly.
If you are an employee, you will pay National Insurance at the class 1 rate, which is shown below:
|Earnings||Class 1 Rate|
|Less than £8,632||0%|
|£8,632 - £50,000||12%|
|More than £50,000||2%|
If you are self-employed, you will be subject to both class 2, and class 4 rates. They are both shown below:
|Profits||Class 2 Rate|
|Less than £6,365||Nothing|
|£6,365 and over||£3 per week|
|Profits||Class 4 Rate|
|Less than £8,632||0%|
|£8,632 - £50,000||9%|
|More than £50,000||2%|
If you are unemployed, or exempt from National Insurance contributions for another reason, you can still make voluntary National Insurance payments if you wish to. If you do, then you will be subject to the class 3 rate, which is shown below:
|Type of Contribution||Class 3 Rate|
|Voluntary contribution||£15 per week|
Depending on the job you do, there may be some different rules regarding National Insurance. There are different rules for:
- Company Directors
- Landlords with a property business
- Share fishermen
What if I'm both employed and self-employed?
It is fairly common to be in full-time employment, but also make money from self-employment on the side. If this is the case for you, your employer will deduct the Class 1 National Insurance you owe as usual from your wages. However, you might also have to pay Class 2 and Class 4 National Insurance on any earnings you get from self-employment.
You'll find out how much National Insurance you have to pay when you file your Self Assessment tax return, which you have to do every tax year if you're self-employed. The amount of National Insurance you'll have to pay depends on a combination of your wages and your self-employed profits.
What are National Insurance Categories?
National Insurance Categories are used to decide how much National Insurance an employee has to pay.
National Insurance Categories are different from classes, which divide people's National Insurance contributions based on whether they are employed, self-employed or unemployed.
National Insurance Categories are defined by different letters. Our table below explains the percentage of National Insurance you have to pay, depending on your category letter.
|Category letter||Category description||£120 to £183 (£520 to £792 a month)||£183.01 to £962 (£792.01 to £4,167 a month)||Over £962 a week (£4,167 a month)|
|A||All employees except those in categories B,C,J,H,M and Z||0%||12%||2%|
|B||Married women and widows, entitled to pay reduced NI (the 'small stamp')||0%||5.85%||2%|
|C||Employees over state pension age||N/A||N/A||N/A|
|J||Employees who can delay paying NI because they're already paying it in another job||0%||12%||2%|
|H||Apprentice under age of 25||0%||2%||2%|
|M||Employee under age of 21||0%||12%||2%|
|Z||Employees under age of 21 who can delay NI because they're already paying it in another job||0%||2%||2%|
Anna earns £400 a week. She qualifies for the reduced rate of National Insurance for married women and widows, because she opted in for it before it ended in April 1977.
- She pays no National Insurance on the first £183 of her earnings.
- She will pay 5.83% on her earnings between £183.01 and £962, which are £217 per week.
- 5.83% of £217 is £12.65, so Anna will pay £12.65 in National Insurance.
Employers' National Insurance Contributions
Employers have a big role in National Insurance Contributions. They have to deduct both their employees' national insurance and pay it to HMRC on their behalf, as well as pay Class 1A National Insurance Contributions (which are known as secondary National Insurance Contributions) on their employees' earnings.
As an employee, you will pay Class 1 National Insurance Contributions, at 12% of your earnings, if you earn above £183 a week. If you earn over £962 a week, you'll pay only 2% in National Insurance. Your employer will take this from your wages and pay it automatically to HMRC.
Your employer will also pay Class 1A National Insurance Contributions at 13.8% of your earnings, if you earn more than the primary threshold of £183 a week. However, this does depend on the National Insurance 'category letter' you belong to, which you can check in our section above: "What are National Insurance Categories?"
For example, if you're an employee under 21 (Category M) or an apprentice under 25 (Category H), your employer will not pay any Class 1A National Insurance Contributions, even if you earn over £183 a week.
If you're a business and you have a total National Insurance Contribution bill below £100,000, you can claim employment allowance. This can reduce the amount of employer National Insurance Contributions you have to pay by up to £4,000 a year.
What are National Insurance credits?
National Insurance credits are designed to help you fill gaps in your National Insurance record, to ensure that you can qualify for certain benefits, for example, the state pension, which helps support you financially as you get older and potentially stop working.
You may have gaps in your National Insurance, for example, if you were claiming benefits due to unemployment or illness. There are two types of National Insurance credits that you can get.
- Class 1. These credits count towards your state pension, but may also help you qualify for other contribution-based benefits such as contribution-based Jobseekers' Allowance.
- Class 3. These credits only count towards your state pension.
You may be eligible for National Insurance credits if you're:
- On Working Tax Credit
- On Universal Credit
- Looking for work. If you're on Jobseekers' Allowance and not in education, or working 16 hours or more a week, you'll automatically get Class 1 credits. If you're unemployed, seeking work but not on Jobseekers' Allowance, you must contact your local Jobcentre to claim Class 1 Credits.
- Ill, disabled or on sick pay
- On maternity, paternity or adoption pay
- A parent registered for Child Benefit for a child under 12 (you'll get Class 3 Credits automatically)
- A foster carer, or a kinship carer in Scotland (you'll need to apply for Class 3 credits)
- On Carer's Allowance (you'll get Class 1 credits automatically)
- On Income Support and a carer (you'll get Class 3 credits automatically)
- On a training course
- On jury duty
- A partner of someone in the armed forces
- Wrongly imprisoned
If you earn above the Lower Earnings limit in one job (in 2020/21 this is £120 per week) and below the National Insurance Contributions threshold of £183 a week, you are treated as though you have paid National Insurance, and will get National Insurance credits automatically. These credits count towards your record, and help you access state pension and other benefits that are dependent on National Insurance Contributions.
However, if you earn less than £120 per week (the Lower Earnings limit), you will not receive National Insurance credits. In this case, you may want to make voluntary National Insurance Contributions, so that you keep your eligibility to contribution based state benefits and state pension.
What benefits does National Insurance pay for?
National Insurance pays for benefits including:
- Basic State Pension
- New State Pension
- Bereavement Benefits
- Maternity Allowance
- Contribution-based/New Style Jobseeker's Allowance (JSA)
- Contribution-based/New Style Employment and Support Allowance (ESA)
- Bereavement Benefits
National Insurance does not pay for the following benefits:
- Universal Credit
- Disability Living Allowance (DLA)
- Personal Independence Payment (PIP)
- Child Benefit
- Guardian's Allowance
- Carer's Allowance
- Industrial Injuries Benefits
- Attendance Allowance
What is a National Insurance Number?
A National Insurance Number is the number against which all the tax and National Insurance contributions you make in your lifetime are recorded. You'll receive your National Insurance number before your 16th birthday. Your National Insurance number never changes.
National Insurance Numbers ensure that the National Insurance contributions and tax you pay are properly recorded on your account. It is made up of a combination of numbers and letters, and you'll take it throughout your life whenever you apply for a job or benefits, pay taxes, or apply for a student loan.
A sample national insurance number is: AA123456C. This is an example only, and shouldn't be used as an actual number.
Your National Insurance number will be recorded on all payslips, as well as any communication from the Department of Work and Pensions (DWP).
Now that we've explored exactly what National Insurance is, who is eligible to pay it and how much National Insurance you have to pay, we hope you've found it an informative read. National Insurance seems complex at first, particularly if you're self-employed, but once you identify what class and category you belong to in National Insurance terms, your next steps become a lot clearer. Remember that you can always contact HMRC on 0300 200 3300 if you need specific advice on your National Insurance situation.