National Insurance is a compulsory payment paid by both employers and employees. Employers pay NI contributions based on your salaries and hours worked. Employees pay NI contributions based on how much they earn. You must pay NI contributions if you earn over £10,600 per annum. If you don’t pay NI contributions, you’ll face fines.
The amount of NI contributions depends on what you earn. For example, if you’re employed full-time and earn less than £9,250 per annum, you won’t pay anything towards NI. However, if you work part-time and earn over £8,700 per annum, you’ll pay up to £1,500 in NI contributions.
If you’re self-employed, you pay NI contributions based on the number of hours you work each month. This is known as ‘payroll tax’.
What is National Insurance?
National Insurance is a tax paid by workers in the UK. It pays for things like healthcare, pensions and unemployment benefits. You pay it every month, even if you’re working full-time.
There are three main classes of National Insurance – class A, B and C, depending on how much you earn.
People who work part-time or self employed don’t pay NI. This includes people who run their own businesses, freelance writers, musicians, artists and many others. They usually won’t pay NI because they don’t earn enough money to make NI payments worthwhile.
People who work less than 26 weeks a year don’t pay NI. If you work fewer than 26 weeks a year, you’ll still have to pay NI, but the amount you owe will be lower.
If you’re a student, you don’t have to pay NI either.
You can find out what you’ve got to pay by looking at your PAYE record.
What is the threshold for national insurance?
The government announced today that it plans to increase the national insurance threshold to £12,570 per year. This means that anyone working full-time earning over this amount will now need to pay national insurance. Currently, the Class 1 threshold is £9,567, meaning that those earning less than this amount do not need to pay national insurance contributions.
This announcement follows the introduction of National Insurance Contributions (NICs) for self-employed workers earlier this month. Self-employment is defined as someone who earns less than £10,500, while being responsible for paying themselves. However, there are some exceptions to this rule. For example, people who work part-time for a single employer, or those who run their own businesses, will still be classed as employees.
In addition, freelancers will continue to pay NICs, even though they are often considered to be self-employed. A spokesperson for HM Revenue & Customs told Business Insider that “freelance workers are treated like self-employed contractors.” They added, however, that freelancers are expected to file returns every quarter.
What other changes to National Insurance were made in the Spring Statement?
The government has announced it will increase the threshold for NI contributions from £10,000 to £12,500, meaning someone earning £30,001 will pay £2,251 less in NI. The Chancellor has increased national tax, despite calls from his party to not do so.
Frequently Asked Questions
What type of National Insurance do I pay once I retire?
National insurance contributions are paid into a fund known as the Consolidated Fund. This money is used to provide pensions for people over 65 and support public services such as health care, education and defence. As part of the government’s welfare reforms, it introduced a new system whereby those aged 60 and over receive a basic state pension based on how much NI they contributed during their working life. Those born before 1960 are entitled to a full state pension at state pension age (SPA), while everyone else gets a lower amount.
The amount of NI you contribute depends on your class of employment. If you worked in Class 1 employment – like most manual workers – you pay Class 1 NICs. These are calculated according to your earnings history and depend on whether you had any qualifying periods outside work. For example, if you worked in a job where you did not qualify for statutory sick pay, you might not have been able to claim statutory maternity pay either.
If you worked in Class 2 employment – like many professional jobs – you pay Class 2 NICs. They are calculated depending on your earnings history and take into account whether you qualified for statutory sick pay.
In both cases, the amount of NICs you pay increases each month as you approach SPA. When you reach SPA, however, there is no further increase. Instead, the amount of your state pension is increased to reflect the extra NI you paid.
Who pays NIC?
You pay NICs because they help fund the state pension. Once you reach SPA, you continue paying them even though you don’t earn enough to make a contribution. However, you stop contributing when you retire, and the government uses the money you paid towards your pension.
Class 1 NICs are paid by employers and employees. Employer NICs are deducted directly from your wages. Employee NICs are taken out of your salary via payroll deductions.