National Insurance
7 mins
Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s National Insurance rules and regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
When do you pay National Insurance?
If you earn a certain amount of money, you will pay National Insurance so that you can qualify for a State Pension and several other benefits such as Bereavement Allowance or Maternity Allowance. If you are over 16 and an employee earning more than £183 a week you will have to pay National Insurance. If you are self-employed and turn over a profit of more than £6,475 you will need to pay too.
Before you can pay National Insurance you will need a National Insurance number. These are usually issued to you before your 16th birthday but if you come to the UK to work, you will need to apply for one once you are in the UK. You will only receive one though if you are entitled to work or study in the UK.
There are different National Insurance classes and the type you pay all depends on your employment status and how much you earn, as well as whether there are any gaps in your National Insurance record – don’t worry though, we will explain all of this a little further on.
You stop paying National Insurance around the State Pension age. If you pay Class 1 or Class 2 National Insurance, you will stop when you reach State Pension age, but you will stop paying Class 4 National Insurance from the start of the tax year (6th April) after you reach State Pension age.
National Insurance numbers
You need a National Insurance number to make sure that any National Insurance contributions (as well as any tax you pay) are recorded against your name only, so that both you and HMRC can see how much you have paid and when.
Your National Insurance number is 9-digits long, made up of numbers and letters, and will never change – you get issued with your National Insurance number just before your 16th birthday and it will remain the same for all your working life and into retirement.
You can find it on your payslip, your P60, letters about your tax, pension or benefits or by logging on to your personal tax account online (it’s under the National Insurance section). If you have lost it and can’t find it from any of these sources, HMRC can tell you what your National Insurance number is.
If you don’t have a National Insurance number, you can apply for one, as long as you are entitled to work or study in the UK.
Who uses your National Insurance number?
It isn’t just HMRC who will use your National Insurance number, even though it is primarily for National Insurance and tax purposes.
It will also be used by the following:
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Your employer – to deduct tax and National Insurance on your behalf and inform HMRC of your deductions.
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The Department of Work and Pensions (DWP) if you claim any state benefits – the DWP includes Jobcentre Plus, as well as the departments who deal with pensions, carers and disability benefits.
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Your local council, if you claim Housing Benefit.
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Electoral Registers Officers, who may use your National Insurance number to check your identity when you vote.
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The Student Loan Company, if you apply for a student loan.
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Your pension provider, if you have taken out a personal or stakeholder pension.
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Your ISA provider, if you have opened an ISA.
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Other authorised financial service providers, such as those who may help you to buy or sell investments like shares, derivatives or bonds.
Because your National Insurance number is often used as part of identity checking procedures, make sure that you keep it safe and don’t share it with those who don’t need it.
If you are ever required to prove your National Insurance number, you can either print a confirmation letter from your personal tax account or you can contact HMRC to ask them to send you a confirmation letter.
What are the different National Insurance classes?
There are a number of different National Insurance classes and the one you pay will depend on a number of factors, such as your employment status, how much you earn and whether you have any gaps in your National Insurance record.
The classes are:
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Class 1 – this is for employees who earn more than £183 a week and are under State Pension age. Your National Insurance will be automatically deducted by your employer.
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Class 1A/ 1B – this is for employers to pay National Insurance deductions directly on any employment expenses or benefits their employees receive.
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Class 2 – this class is for self-employed people who earn more than £6,475 per year. If you earn less you don’t have to pay, but you might choose to make voluntary contributions to keep your National Insurance record up to date.
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Class 3 – these are voluntary contributions so that you can either fill in any gaps or avoid gaps in your National Insurance record so you keep your eligibility for certain benefits, including your State Pension.
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Class 4 – this is for self-employed people who make profits of over £9,501 per year.
How much National Insurance do you have to pay?
How much you pay depends on how much you earn and your employment status.
For Class 1 National Insurance contributions, if you earn between £183 and £962 a week (£792 to £4,167 a month), the rate is 12%, which then drops to 2% for amounts over £962 per week (or £4167 per month). If you are deferring National Insurance because you have more than one job, or if you are a ‘married woman or widow’ with a valid ‘Certificate of Election’, you will pay less. Employers will pay a different rate of National Insurance depending on the category letters of their employees. Your National Insurance will be deducted along with your tax and your deductions will be shown on your payslip.
If you are self-employed, you will pay Class 2 and Class 4 contributions depending on your profits and you will pay this through your Self Assessment tax return. There are a few special rules for people with certain jobs (such as examiners or religious ministers) who don’t have to pay Class 2 National Insurance contributions through Self Assessment, although they may choose to pay voluntary contributions.
Of course, it is possible that you could be employed and self-employed at the same time – if you have a main job and then do self-employed work outside of your main working hours. If this is the case, your employer will deduct your Class 1 deductions from your wages for your job and you will have to pay Class 2 and 4 payments through your Self Assessment tax return for your self-employed income. How much you pay will depend on how much income you have from all your jobs. HMRC will inform you if you owe any National Insurance after you have submitted your tax return.
There are different rules for company directors, landlords and share fishermen. These are:
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Company directors: directors are classed as employees of the company and will pay National Insurance on their annual income from salary and bonuses over £9,500. Their contributions are worked out from their annual earnings, rather than from each pay period (weekly or monthly).
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Landlords: you will have to pay Class 2 National Insurance contributions if your profits are over £6,475 a year and what you do is classed as running a business (for example, if you rent out more than one property or you buy new properties to rent out). If your profits are less, you can choose to make voluntary contributions.
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Share fishermen: if you are classed as a share fisherman, you will have to pay Class 2 contributions of £3.70 per week at the current rates.
What is National Insurance for?
Often, people tend to have an idea what the government does with their tax revenue, but National Insurance is trickier to understand. People know that they are paying into something – hence the need to have a full National Insurance record – but what exactly does National Insurance go towards? Again, it all depends on what class you pay.
|
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 Jobseekers Allowance |
Yes |
No |
No |
| Contribution-based Employment and Support Allowance |
Yes |
Yes |
No |
|
Maternity Allowance |
Yes |
Yes |
No |
|
Bereavement Payment |
Yes |
Yes |
Yes |
|
Bereavement Allowance |
Yes |
Yes |
Yes |
|
Widowed Parent’s Allowance |
Yes |
Yes |
Yes |
|
Bereavement Support Payment |
Yes |
Yes |
No |
Class 4 contributions generally don’t count towards state benefits – you will only pay these contributions if you are self-employed and you turn over a profit of more than £9,501.
Can you get help with your National Insurance?
Because your access to benefits and State Pension can be affected if there are any gaps in your National Insurance record, sometimes you might be eligible to claim National Insurance Credits. These credits help to fill in any gaps you might have due to not working because of illness, unemployment or because you are caring for someone. You will also get National Insurance credits if you receive child benefit for a child under 12, due to the fact you might be unable to work due to childcare issues. Sometimes you are automatically eligible for National Insurance credits and they are added to your record without you having to do anything but in other situations you might have to apply for them.
You can also top up your National Insurance record with voluntary contributions so that you are able to fill any gaps you might have.
It’s important to inform HMRC of any changes in your circumstances – for example, if there is a change in any of your personal circumstances, like your marital status or your employment status. It might affect your National Insurance record in the long run if you don’t inform HMRC
How can DSR Tax Refunds help?
We know that understanding National Insurance can be a complicated affair, even with our helpful guide to tell you everything you might need to know. It’s all very well reading about it and knowing what HMRC’s stand on it is – but how do you apply that to your own circumstances? It can seem like an absolute minefield but help is always available and you don’t need to battle through this alone. Our team of experts at DSR Tax Refunds are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
This page was last updated on 15/09/2020.