Like all taxes, National Insurance is part of life, and whilst it can be frustrating to see deductions made from your hard-earned pay, taxes fund crucial services that keep the UK running. Not only do National Insurance contributions keep the NHS and the courts of law in business, but they also entitle you to schemes that will benefit you later in life — some of which you may not even be aware of.
Your National Insurance contributions fund the State Pension that is available to you when you are no longer able to work. They also allow you to take statutory sick pay and maternity leave, in addition to unemployment benefits such as Jobseeker's Allowance.
With so many taxes to pay and different payment thresholds, it can often be tricky to work out the contributions you need to make, particularly in order to be eligible for the benefits available. The Government has also recently increased National Insurance contributions by 1.25% for the 2022 to 2023 tax year, meaning your previous rates may have changed.
In this guide, we will cover everything you need to know about National Insurance, including what it is, who pays National Insurance contributions, what the new rates are, and what your contributions go towards. So, let's get stuck in!
National Insurance (NI) is a tax that is paid on employee earnings and self-employed profits. The contributions you make go into the National Insurance Fund and are then used to pay for the state benefits mentioned previously.
A National Insurance number is made up of numbers and letters and is used to record your tax and National Insurance contributions against your name. Usually, you will be sent the number in the run-up to your 16th birthday, and it will not change at any point in your life.
You can find your National Insurance number:
- On your payslips
- On your P60
- On letters regarding tax, pension or benefits
- Online in your personal tax account under the National Insurance section
If, however, you have not got a National Insurance Number and you are planning to work, you can apply for one online. You will not be eligible for one if:
- You have lost your National Insurance number
- You are a UK resident aged 19 or younger and have not contacted HM Revenue and Customs (HMRC) first
- You have a biometric residence permit which includes a NI number on it
- You are only applying for a NI number because you are applying for benefits or a student loan
It is important to keep your National Insurance number safe in order to prevent identity fraud. Therefore, only share it with those who actually need it. These organisations are:
- Your employer
- The Department for Work and Pensions
- Your local council
- Electoral Registration Officers
- The Student Loan Company
- Your Individual Savings Account (ISA) provider
- Authorised financial service providers — check if your provider is authorised
National Insurance is paid by employees, employers and self-employed sole traders so that they are entitled to a State Pension and other benefits.
Employees and Self-Employed Individuals
You will be eligible to pay NI contributions if you are aged 16 or older and either:
- An employee earning over £190 per week
- Self-employed and making £6,725 or above in profit annually
You can also choose to make voluntary contributions so that you avoid gaps in your National Insurance payment record. These gaps can be due to several circumstances such as:
- Being unemployed and not claiming benefits
- Being employed but with low income
- Being self-employed but not paying NI contributions due to low profit
- Living or working outside the UK
Gaps in your NI payments can affect your eligibility for a State Pension or some benefits. In order to protect your NI record, if you earn between £123 and £190 a week, your NI contributions will be treated as being paid.
In order to be eligible to pay voluntary contributions, you must be one of the following:
- Employed but not earning over £123 per week and not eligible for National Insurance credits
- Self-employed with an income of £1,000 or less
- Self-employed with income over £1,000 but with profits of less than £6,725
- Self-employed in an investment or land and property business, or working as an examiner or minister of religion
- Living abroad but not working
- Unemployed and not claiming benefits
- A married or widowed woman who has stopped paying reduced National Insurance rates
If you are employed, you will stop paying any National Insurance when you reach State Pension age, even if you continue to work.
Alternatively, if you are self-employed, you will stop paying:
- Class 2 National Insurance when you reach State Pension age
- Class 4 National Insurance from the start of the tax year (6 April) after you reach State Pension age
Employers are responsible for paying their own National Insurance, as well as deducting the National Insurance from their employees' wages and paying it to HMRC. Employers pay:
- Class 1A and 1B National Insurance on expenses and benefits given to employees (e.g. company cars or gym memberships)
- Class 1A National Insurance on some lump sum payment, e.g. redundancy pay
Directors, landlords and share fishermen
Individuals in these categories will be subject to slightly different National Insurance rules.
Directors are considered employees and will pay National Insurance on their annual income (salary and any bonuses) over £9,800. The company in which they are employed will also be charged National Insurance, and this applies even if you are the Director of your own company and you run payroll.
Landlords pay Class 2 National Insurance on annual profits of £6,725 and over, provided what they do is considered to be a business. If you are a landlord earning below the threshold for Class 2 contributions, you can still make voluntary contributions.
Share fishermen are also considered self-employed and will pay Class 2 National Insurance. For this reason, as a share fisherman, you will need to register as self-employed and complete a Self Assessment annually.
As previously mentioned, the NI contributions you make not only support the UK's National Health Service (NHS), but they also provide workers with a safety net if they fall on hard times, such as being unemployed or needing to take time off sick.
In order to be entitled to claim your State Pension, you need to have contributed to the National Insurance Fund for a specific number of years. Furthermore, if you do not make enough contributions, you may not qualify for benefits such as Maternity Allowance or unemployment benefits.
There are several types of National Insurance called 'classes'. You will be allocated a NI class based on your employment status and your level of income. Below is a table that shows all the National Insurance classes and to whom they apply.
|National Insurance class||Paid by|
|Class 1||Employees earning more than £190 a week and under State Pension age|
|Class 1A or 1B||Employers, who pay these directly on their employee’s expenses or benefits|
|Class 2||Self-employed individuals who earn profits of £6,725 or more per year|
|Class 3||Self-employed individuals who want to make voluntary contributions to fill or avoid gaps in their National Insurance record|
|Class 4||Self-employed people earning profits of £9,881 or more a year|
It is possible to pay more than one type of National Insurance. For example, if you are both self-employed and employed by a company. In this instance, you will usually pay Class 1 National Insurance contributions which your employer will deduct from your wages, as well as Class 2 and Class 4 National Insurance contributions. Class 2 and 4 contributions are determined when you fill out your Self Assessment tax return for income that is in addition to your usual employment earnings.
The amount you will pay in National Insurance will depend on several factors including:
- Your employment situation
- Your age
- The amount you earn
Each NI class has a tax rate that is used to work out how much you will pay for your NI contributions.
If you are employed, you will be paying Class 1 National Insurance contributions. The rates for the 2022 to 2023 tax year are as follows:
|Income||Class 1 rate|
|£190 to £967 a week (£823 to £4,189 a month)||13.25%|
|Over £967 a week (£4,189 a month)||3.25%|
If you are an employer paying Class 1A and 1B National Insurance, the rate for the current tax year is 15.05%.
If you are self-employed, you will pay 2 types of National Insurance:
- Class 2 if your profits are £6,725 or more a year
- Class 4 if your profits are £9,881 or more a year
You can work out your profits by deducting any expenses from your self-employed income.
The Class 2 tax rates for the current tax year are as follows:
|Profits||Class 2 Rate|
|Less than £6,725||£0 per week|
|£6,725 and over||£3.15 per week|
The Class 4 tax rates for the current tax year are as follows:
|Profits||Class 4 Rate|
|Less than £9,881||0%|
|£9,881 - £50,270||10.25%|
Finally, if you are unemployed or exempt from paying standard National Insurance contributions, you might be eligible to make voluntary payments so that you avoid gaps in your record that prevent you from getting a State Pension or other benefits. For these Class 3 voluntary NI contributions, the current tax rate is £15.85 a week.
Not to be confused with your National Insurance class, your National Insurance category letter is used by employers to work out how much National Insurance an employee must pay. The letter you are assigned is used by your employer when they carry out payroll.
As previously mentioned, individuals who are employed pay Class 1 National Insurance. These Class 1 contributions are split into two amounts deducted from the employee's pay. These are:
- National Insurance paid by the employee
- National Insurance paid by the employer
The amounts that are deducted for each one depend on the employee's National Insurance category letter and how much of the employee's earnings fall within each band threshold.
The following table summarises the National Insurance category letters and the employees they are assigned to. The majority of employees have category letter A. However, if you are unsure which one you have, you can find your letter on your payslip.
|Category letter||Employee group|
|A||All employees except those in groups B, C, H, J, M, V and Z|
|B||Married women and widows who are entitled to pay reduced National Insurance|
|C||Employees over State Pension age|
|F||All employees who work in freeports, apart from those in groups I, L, and S|
|H||Apprentices under 25|
|I||Married women and widows who work in freeports and are entitled to pay reduced National Insurance|
|J||Employees who can defer National Insurance because they’re already paying it in another job|
|L||Employees who work in freeports can defer National Insurance because they’re already paying it in another job|
|M||Employees under 21|
|S||Employees who work in freeports and are over State Pension age|
|V||Employees who are working in their first job since leaving the armed forces (veterans)|
|X||Employees who do not have to pay National Insurance, e.g. they are under 16|
|Z||Employees under 21 who can defer National Insurance because they’re already paying it in another job|
Employers 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.
The amount of National Insurance that your employer will deduct from your salary depends on the National Insurance category letter that you have. Below is a table that shows the category letters and the corresponding percentage of your annual earnings that your employer will deduct for the 2022 to 2023 tax year.
|Category letter||£123 to £190 (£533 to £823 a month)||£190.01 to £967 (£823.01 to £4,189 a month)||Over £967 a week (£4,189 a month)|
In addition to the deductions made to employee salaries, employers pay tax contributions towards employees' National Insurance at a rate of 15.05%. The table below shows the category letters assigned to employees and whether their employer makes contributions toward their National Insurance.
|Category letter||£123 to £175 (£533 to £758 a month)||£175.01 to £481 (£758.01 to £2,083 a month)||£481.01 to £967 (£2,083.01 to £4,189 a month)||Over £967 a week (£4,189 a month)|
If you're employed, your National Insurance contributions will be automatically deducted each month from your pay, along with and Income Tax you owe. It is worth noting that National Insurance paid by directors is worked out from an annual salary rather than earnings from each pay period. If you are the director running payroll, your NI contributions will be reported to HMRC and paid through the usual payroll system.
Employers pay National Insurance monthly as reported on the Full Payment Submission (FPS) in the previous tax month. The FPS is sent using payroll software, and it declares any payments to employees and the deductions made. Employers need to pay their tax bill by the 22nd of the month using one of the following methods:
- Online payment
- Bank transfer using CHAPS or Bacs
- Direct debit - provided it has been previously set up
- At their bank or building society
- By cheque - only for companies with fewer than 250 employees
Self-employed individuals will not have their NI contributions automatically deducted. Instead, they must report deductions in a Self Assessment tax return and pay their tax bill. The deadlines for Self Assessment are as follows:
|Register for Self Assessment||5 October 2022|
|Complete paper tax returns||Midnight 31 October 2022|
|Complete online tax returns||Midnight 31 January 2023|
|Pay the tax you owe||Midnight 31 January 2023|
National Insurance credits are designed to help you fill gaps in your National Insurance record to ensure that you can qualify for a State Pension and other state-provided benefits.
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 Jobseeker's Allowance and not in education or working more than 16 hours a week
- You’re on Employment and Support Allowance (ESA), or Unemployability Supplement or Allowance
- On Maternity Allowance or Statutory Maternity, Paternity, or Adoption Pay
- Receiving Child Benefits for a child under 12
- A foster carer or kinship carer in Scotland
- On Carer's Allowance, Income Support, or you're caring for one or more sick or disabled person for a minimum of 20 hours per week
- A carer for a family member under the age of 12
- On Working Tax Credit
- Getting Universal Credit
- On a training course
- On jury duty
- A partner of someone in the armed forces
- Wrongly imprisoned
As mentioned, if you earn above the Lower Earnings Limit (LEL) in one job (in 2022/23, this is £123 per week) and below the National Insurance Contributions threshold of £190 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 £123 per week (the Lower Earnings limit), you will pay no National Insurance or receive National Insurance credits. In this case, you may want to make voluntary National Insurance contributions so that you keep your eligibility for contribution-based state benefits and State Pension.
The National Insurance fund 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
However, it does not pay for:
- Universal Credit
- Disability Living Allowance (DLA)
- Personal Independence Payment (PIP)
- Child Benefit
- Guardian's Allowance
- Carer's Allowance
- Industrial Injuries Benefits
- Attendance Allowance
The following table summarises the types of National Insurance contributions that you may pay and what they make you eligible for.
|Benefit||Class 1: Employees||Class 2: Self-employed||Class 3: Voluntary contributions|
|Basic State Pension||Yes||Yes||Yes|
|Additional State Pension||Yes||No||No|
|New State Pension||Yes||Yes||Yes|
|Contribution-based Jobseeker’s Allowance||Yes||No||No|
|Contribution-based Employment and Support Allowance||Yes||Yes||No|
|Bereavement Support Payment||Yes||Yes||No|
There are two types of State Pension available:
- Basic State Pension
- New State Pension
Basic State Pension
You can claim for the basic State Pension if you are:
- a man born before 6 April 1951
- a woman born before 6 April 1953
The minimum number of years you need to have paid National Insurance contributions for is usually:
- 11 years for men born before 1945
- 10 years for women born before 1950
For a full State Pension, you need to have paid National Insurance contributions for a total of 30 years and be of State Pension Age. This means that one of the following applies to you:
- you worked and paid National Insurance
- you got National Insurance Credits
- you paid voluntary National Insurance contributions
The full pension entitles you to £141.85 per week. If you have fewer than 30 years, your basic pension will be less than this, although you can make voluntary contributions to build up to the 30 years you need.
New State Pension
You can claim for the new State Pension if you are:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953
You need to be of State Pension age to be eligible for the new State Pension and have made NI contributions for a minimum of 10 years. The same as the Basic State Pension, this means that one of the following applies to you:
- you worked and paid National Insurance
- you got National Insurance Credits
- you paid voluntary National Insurance contributions
You may also be eligible for the new State Pension if you have lived or worked abroad or you have paid married women's or widow's reduced rate contributions.
The full State Pension is £185.15 per week if have 35 qualifying years. If you have accumulated less than this, your pension will be based on your National Insurance record at the time you reach State Pension age.
You will not automatically get a State Pension; you have to claim it.
You can claim the basic State Pension using one of the following methods:
- Call the State Pension claim line on 0800 731 7898
- Download the form and send it to your local pension centre
- Claim From abroad
If you are claiming a new State Pension, you should get a letter from HMRC within 2 months prior to you reaching State Pension age. This letter will instruct you on how to claim your pension. If you do not receive a letter but are still within 4 months of State Pension age, you will still be able to make a claim. The fastest way to do this is to apply for your pension online.