National Insurance

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Everyone in the UK has a unique National Insurance (NI) number, it is a personal number used to record a person's national insurance contributions and credited contributions. It is a number used for reference in the UK social security system. Most people who work have to pay National Insurance contributions (NICs).

National Insurance is seperate to income tax and is collected by the Inland Revenue. National Insurance contributions go towards benefits, such as state pensions and unemployment benefits. There are six classes of National Insurance.

National Insurance contribution types

Each type of National Insurance contribution is calculated and collected in a different way.

Class 1 NICs

Employers are responsible for calculating, deducting and paying Class 1 primary NICs (employees' contributions) to the Inland Revenue on behalf of all employees earning above the earnings threshold. These must be deducted from their salary.
Employers must also calculate and pay Class 1 secondary NICs (employers' contributions) for all employees earning above the earnings threshold. And employers must keep adequate records showing how their NICs were calculated and what payments have been made for each employee.

Class 1A NICs

Employers must calculate and pay Class 1A NICs due on taxable benefits given to employees, such as company cars or health insurance. These must be declared on form P11D annually and a copy given to the relevant employee by 6 July after the end of the tax year.

Class 1B NICs

These are only paid by employers who have a PAYE Settlement Agreement (PSA) with the Inland Revenue.

Class 3 NICs

These are paid voluntarily by individuals who want to protect their right to certain benefits, for which they have not yet made sufficient contributions. Employees are responsible for finding out if they need to pay Class 3 NICs and for setting up a method of payment.

Class 2 NICs - Self Employed

Most self-employed people pay Class 2 NICs, unless they earn too little or have a certificate of exception. These are paid weekly at a flat rate by the self-employed, unless they earn too little or have a certificate of exception. They are collected by the Inland Revenue National Insurance Contributions Office, either by quarterly bills or by direct debit.

Class 4 NICs - Self Employed

Class 4 NICs are paid in addition to Class 2 NICs by self-employed people who make a profit over a certain limit in the tax year. Self-employed people declare their profits annually on a self-assessment tax return.