National Insurance Contributions rates: What is it and should you pay it?

The government has announced changes to the way it calculates national insurance contributions (NICs). The changes mean that people earning less than £16,250 each year will pay less NICs than under current rules. This applies to both employees and self-employed workers.

There are three main NIC classes: Class 1 – Earnings up to £8,060 per year (£10,000 if you’re married); Class 2 – Earnings between £8,061 and £12,140 per year; Class 3 – Earnings over £12,141 per year.

If you earn less than £8,060, you won’t pay any NICs. If you earn between £8,062 and £12,139, you’ll pay 10% NICs on the first £4,020 earned and 5% NICs on anything above that. For example, someone earning £9,100 pays 10% NICs on £4,020 plus 5% NICs on the remaining amount.

People earning more than £12,140 pay 20% NICs on everything they earn. So someone earning £15,200 pays 15% NICs on £5,040 plus 10% NICs on everything else.

As well as paying NICs, those earning less than £8,062 pay income tax at the basic rate of 20%. People earning between £8,063 and £12,139 pay income tax at the higher rate of 40%. Those earning more than £12.140 pay income tax at the 45p rate.

1. Class 1 National Insurance thresholds

The Government announced today that the class 1 national insurance threshold for employees working up to £9,440 per annum will increase from £8,850 to £9,440 from April 2021. This change will affect approximately 2 million people across the UK.

2. Earnings limits for National Insurance deductions

From April 2021, you can only claim National Insurance deductions where your earnings are over the lower earnings limit. This applies to you whether you work full-time or part-time. Your earnings will include any salary, bonus, commission, overtime pay, tips, allowances, benefits and payments such as housing benefit, child benefit, pension contributions etc.

3. Apprentices and veterans don’t qualify for National Insurance

You cannot claim National Insurance deductions for your apprentice wages or veteran training allowance.

4. How much do I earn?

To find out how much you earn, use our calculator here.

1.1 Weekly thresholds

The amount of National Insurance contributions paid by employers is based on the number of hours worked each week. If you work more than 40 hours a week, you must contribute towards National Insurance. You can find out how much National Insurance you will pay here.

If you work fewer than 35 hours a week, you don’t have to pay anything toward it. However, if you work more than 41 hours a week, you’ll have to make some contribution toward National Insurance.

You can check how much National Insurance you owe here.

Employees do not pay National Insurance, but receive the Employer start paying National Insurance. When you’re working less than 35 hours a week you won’t have to pay anything towards National Insurance. But if you’re working more than 40 hours a weeks, you’ll have to pay something towards National Insurance.

In addition, if you’re under 21, you won’t pay anything towards National Insurance because you aren’t eligible to be employed.

However, if you’re aged 22 or older, you will have to pay National Insurance.

Employers of employees who are under 21 pay no National Insurance. They don’t have to pay National Insurance either.

1.2 Monthly thresholds

The latest figures show that employers paid £3.7bn in national insurance contributions (NICs) in 2018/19 – down 0.9% compared to 2017/18. This equated to an average contribution per employee of £1,058.

Employees did not pay NICs in 2018/19, but received a benefit of £533 per month.

Employees start paying National Insurance £1,048

Employees start paying National Insured £758

Employers start paying National Insurance £758

All employees pay a lower

rate of National Insurance

2. Class 1 National Insurance rates

The government has announced changes to how much employers must contribute towards their workers’ national insurance payments. Employers will now pay £4.20 per week towards each worker’s contribution.

This is up from £3.90 per week paid in 2018/19. In addition there will be a rebate for people employed in contracted out pension schemes, while those working in money purchase schemes are eligible for a refund.

Employees in self-employed pensions will see no change to their NI contributions.

2.2 Employee rates

The Federal Government has announced changes to the way employers calculate workers’ pay. From July 1, 2018, employers will no longer be able to count overtime hours worked over the maximum number of hours permitted under the Fair Work Act towards the calculation of the employer’s regular hourly rate. This change applies to all employees working in Australia regardless of whether they are paid weekly, fortnightly or monthly.

Employees who work fewer than 40 hourswill receive a tax rebate. In order to qualify for this rebate, employees must work in an employment contract that provides for a defined benefit pension scheme.

3. Insurance for Classes 2 and 4 at the National Level (self-employed)

Voluntary National Insurance is paid by employers and employees. If you are self-employed, you must pay it yourself. If you do not pay it, you risk losing your entitlement to benefits. This includes state pension payments.

You will pay the same amount whether you take out no cover or take out the maximum level of cover.

If there is a gap in your records, you might lose some benefit entitlements.

3.1 Class 2

Class is an investment opportunity where people pay you to live somewhere else. You don’t have to do anything – just let someone use your home for free. And it doesn’t matter whether you’re renting out a room in your house, a flat, or even a whole property.

There are different ways to invest. For example, you can buy shares, which will provide you with regular income over time. You can also lend out your spare room, which gives you rent every month.

For those looking to retire early, Class is a great option. You can put away some money each month, which will grow tax-free, and you won’t have to worry about finding a job again once you stop working.

3.2 Class 4

The government announced plans to introduce a 3.2% class 4 National Insurance contribution (NIC) for self-employed people earning over £150,000 per annum.

Those earning under £50,000 won’t see any change. They’ll still receive the same amount free healthcare.

The government says it wants to make sure everyone pays their fair share.

3.3 Special rates

The Government introduced special rates for employers who pay into the state pension scheme called National Insurance Contributions (NIC). These rates apply to employers who employ one person and whose NIC contributions total £2.5 million per annum or less. Employers will now be able to claim tax relief on their NIC payments up to 20% of the amount they contribute.

This change applies to employers who start paying into the scheme on or after October 1st 2018. If you are unsure whether your employer falls within this category, please contact HMRC.

4. Insurance of the United Kingdom, Class 3 (voluntary)

Voluntary National Insurance is paid automatically by employers and employees. You are entitled to claim it if you earn less than £8,105 per annum. If you earn over £8,105 per year, you must pay the correct amount of tax and national insurance contributions.

For any year except the two previous years, you will pay the same rate as everyone else. In 2016/17, the rate is £2,973.

If you do not pay voluntary National Insurance, HMRC will fine you up to £100 per month.

Payments to be made by Direct Debit on a Monthly Basis for 2022 and 2023

The Government announced today that it intends to introduce a new method for paying Council Tax bills. From April 2021, people will pay their council tax bill directly into their bank account via a monthly direct debit. This will mean that you won’t receive a paper bill anymore – just a reminder email telling you what you owe. You’ll still have 28 days to make sure you’ve paid your bill, but we think that’s plenty of time.

This change will apply to everyone living within the UK, including those living abroad. If you’re moving home or changing address, you don’t need to do anything. We’ll take care of everything else.

If you already use online banking, you can sign up for a direct debit straight away. If you’d prefer to manage your money manually, you can download our free app to set up a direct debit.

Frequently Asked Questions

Monthly Direct Debit payments from 2022 to 2023

National insurance is a tax charged on everyone aged 16 and above. There are three main types of national insurance; income tax, social security and employment. Income tax applies to anyone earning money, whether they are employed or self-employed. Social Security applies to employees and employers, while Employment Tax is paid by those working in the UK.

Income tax is split into basic rate, higher rate and additional rate. Basic rate starts at 20%, goes up to 40% and 45% respectively. Higher rate begins at 41% and continues to 50%. Additional rate begins at 45% and goes up to 48%. These rates apply to earnings over £110,000 per annum (£11,000).

Social Security is split into four parts – state pension, child benefit, maternity allowance and sick pay. State pension is paid to people aged 65 and older, and is based on how long they have been contributing to the system. Child Benefit is paid to children under 18, and is set at £20.50 per week per child. Maternity Allowance is paid to women who give birth, and is usually around £140 per month. Sick Pay is paid to workers who fall ill, and is typically around £100 per week.

Employment Tax is split into corporation tax and employer NICs. Corporation tax is charged on companies, and is generally applied to businesses with annual turnover of more than £150,000. Employer NICs are levied on employers, and are calculated depending on the number of employees. They start at 2% and go up to 10% for larger firms.

If you earn less than £10,600 per year, you won’t have to pay anything towards NI. If you earn between £10,601 and £45,000, you’ll pay 3% of your salary. For every pound earned over £45,001 you’ll pay 4% of your salary.

When will I be required to pay National Insurance?

Do you get paid through a PAYE system? If so, then National Insurance contributions will be deducted from your salary, meaning you won’t need to worry about paying NI yourself. It applies to each pay cycle, so there are no exceptions to this rule.

This means if you earn extra money in one pay period, you’ll pay additional National Insurance. However, you won’t be able claim the extra back, whether your pay is lower or higher during the rest of the tax year. So if you’re earning £100 per week and get paid twice a month, you’ll still have to pay £20 NI every fortnight.

If you work part-time, you might think you don’t owe any NI because you’re only working half-time. But you actually still have to pay NI while you’re working, even though you’re only getting paid for 40 hours.