What is National Insurance?
National insurance contributions are compulsory payments paid by everyone who earns money, regardless of age. They help fund the NHS and social care system.
Students don’t have to pay NI contributions until they reach 18. This is because students are considered self-employed and therefore do not have to contribute towards social security.
There are four main types of NI contributions; employer NI, employee NI, student NI and housing benefit NI. These are split into three bands depending on how much you earn.
Employer NI is charged on your gross income up to £7,871 per annum. If you earn over £7,871, you must pay additional amounts called supplementary earnings.
Student NI is charged on your net income up to £3,850 per annum. If your net income exceeds £3,850, you must pay additional charges called supplementary allowances.
Housing Benefit NI applies to people aged 16 and older who live in council accommodation. Housing Benefit NI is calculated according to the number of bedrooms in your home.
Do I have to contribute to National Insurance?
There are three main ways in whic you could be affected by NI. Employers must deduct NI contribution from employees’ wages. Self employed people pay NI based on their income. And people aged under state pension age (currently 66) are exempt from paying NI. However, once you reach state pension age, you won’t have to pay any NI anymore.
You can check how much you’ll owe in NIC each month – and whether it’s due now – by entering your details into our online calculator.
For the self employed, you must pay Class IV NIC throughout the tax year you turn 65.
I am a student. Do I have to pay National Insurance contributions?
There are no special rules for students in the United Kingdom. They pay national insurance like any ordinary employee.
The government charges employers £1.35 per hour worked up to a maximum of £4,420 a year. This includes all employees paid under the National Minimum Wage.
Employers must charge the correct amount of NI, regardless of whether the person working is self-employed or employed by another employer.
Students do not qualify for the lower rates because they are not usually considered workers. But some people say they should still be charged national insurance.
A spokesperson for HM Revenue & Customs told HuffPost UK: “National insurance is payable by everyone except those exempt – such as students.”
What are National Insurance credits?
National Insurance credits are a type of tax credit that helps people who pay National Insurance Contributions (NIC). They can be claimed against income tax liability and are worth up to £1,100 per person per year.
There are two types of National Insurance credits: Class 1 and class 3.
Class 1 NI credits cover wages paid to employees and employers NIC payments.
Class 3 NI credits cover employer NIC payments.
If you are self employed, there are different rules around how much you must earn to be eligible for class 2 NI credits.
You can claim National Insurance credits even if you do not earn enough money to be required to pay NICs.
The amount of National Insurance credits you receive depends on whether you are claiming class 1 or class 3 NI credits.
What benefits are covered by my contributions?
The government says it wants to help people who are struggling financially. But what exactly are the benefits we receive from our taxes? And what about those who don’t pay income tax? Here’s everything you need to know about the different types of benefit.
Benefits paid directly by the Government
If you’re self-employed or work part-time, there are some benefits you might qualify for. These include:
Jobseekers’ Allowance – This is designed to help people find employment. You must meet certain requirements to claim JSA.
Employment Support Allowance – This helps people who are unemployed, disabled or retired. If you’re claiming ESA, you’ll usually need to show that you’ve been unable to work because of ill health.
Income Support – Income Support pays out to low-income families to make up for the loss of earnings caused by being sick, injured or having children.
Child Tax Credit – Child Tax Credits are paid to parents whose child(ren) live with them full-time. They’re worth £1,850 per year.
What is the definition of Class 1 National Insurance contributions?
Class 1 National Insurance contributions (NIC) is a tax deducted by employers on behalf of their workers. This money is used to pay pensions and health benefits for UK workers.
The amount of class 1 NIC you pay depends on how much you earn. If you work full-time, it’ll cost £2.20 per week. If you work part-time, it‘ll cost £1.40 per week.
Your employer pays class 1 NIC on your earnings. You don’t pay anything towards class 1 NIC.
If you want to know what type of NIC you’re paying, check out our guide here.
What is the definition of Class 2 National Insurance contributions?
A person must earn £83k or more before they begin paying Class 2 NI. This includes self employed people, sole traders, contractors, freelancers and anyone else who earns above £10,300. If you earn less than this amount, you won’t start paying Class 2 NI.
On 6 April 2023, we’re aligning the Class 2 NI threshold with the Class 4 NI threshold. That means that everyone earning over £83,001 will start paying Class 2 NI next year. We’ll keep working hard to make sure that no one pays too much tax, and that everyone gets a fair deal.
What is the definition of Class 3 National Insurance contributions?
Class 3 NIC is paid by employees who work in certain industries. This includes people working in retail shops, restaurants, hotels, cleaning companies, care homes, construction sites and many others. You don’t have to pay it yourself – it’s paid by your employer. If you’re self-employed, you’ll still have to make some payments, though.
The amount depends on how much money you earn. For example, someone earning £16,500 a year pays about £1,100 per year. The government says that the average person pays around £2,200 a year.
What is the definition of Class41 National Insurance contributions?
Class 4 NI is a tax charged on people earning over £10,000 per calendar year. This includes anyone working full time or part time, self employed or unemployed.
There is a limit of £10,000 per person before you have to pay class 4 NI. If you earn less than £5,000 per month, you won’t have to pay it.
You don’t have to pay class 4 NIC if you earn less than 10k per annum.
What is the procedure for paying National Insurance contributions?
Class 1 NIC is paid through Pay As You Earn (PAYE). This means that you are required to pay tax on your earnings. If you earn less than £10,200 per annum, you don’t have to pay anything. For those earning over £10,200, you must pay 20% income tax plus NI.
You can’t claim Class 1 NIC if your total annual salary is under £9,440. In addition, if you’re self employed, you won’t be able to claim Class 1 NIC. However, if you are a sole trader, you can still make claims for Class 2 NIC.
Class 2 NIC is paid through self assessment. This means that you calculate how much tax you owe yourself and then submit it to HMRC. There are no limits on how much you can claim, although there are some restrictions on what you can deduct from your taxable income.
If you are a full-time employee, you can claim Class 3 NIC through a monthly direct debit. Your employer pays Class 3 NIC into your bank account each month. You can choose to receive your payment either weekly or fortnightly.
Finally, Class 4 NIC is paid via a quarterly direct debit. This means that you’ll automatically receive your payments every three months.
Frequently Asked Questions
Can I reclaim my national insurance if I leave the UK?
National insurance contributions (NICs) are paid to HM Revenue & Customs (HMRC) by your employer through the PAYE system. You usually receive a statement each month showing how much tax you owe and what amount of NICs you have already been given back.
In some cases a refund of NICs can be claimed but only if you qualify under one of the following conditions:
• Your income is less than £150,000 per annum
• You live outside the EU
• You do not work in the same job as someone else who lives within the UK
• You are self employed
If you meet these criteria you can apply for a refund of NICs. You must complete Form N1 and send it to HMRC along with proof that you are entitled to a refund.
How to Get a National Insurance Refund
You can use this tool on the Gov.uk website to check whether you qualify for a National Insurance rebate. This includes getting money back on things like car insurance, mobile phone contracts and energy bills. There are three main types of NI rebates – Class 1, 2 and 3.
Class 1 is for people who pay too much tax because they earn less than £12,500 a year. They can apply for a rebate to reduce the amount they owe HMRC.
Class 2 is for those earning up to £50,000 per annum and Class 3 covers anyone else. These include pensioners, self employed individuals and small businesses.
To find out whether you qualify for a NI rebate, enter your postcode into the tool. If it says “you do not qualify”, you don’t. But if it tells you you’re eligible, you’ll need to fill out the relevant forms and send them off to HMRC.