National Insurance.

You pay National Insurance (NI) on your earnings from work.

It funds some state benefits, such as the State Pension and unemployment support. The NI contributions you make build your entitlement to some benefits later on.

Although it’s linked to benefits, National Insurance isn’t held in a personal fund for you. The money goes into government funds and is used alongside other tax income.

How is NI different from Income Tax?

NI is different from Income Tax in one key way:

• Income tax applies to most types of income
• National Insurance only applies to the income you earn

So you usually only pay National Insurance on money you earn from working, either as an employee or through self-employment.

How much National Insurance do you pay?

The amount you pay depends on:

• whether you are employed or self-employed
• how much you earn

If you are employed.

Employees pay Class 1 National Insurance contributions.

You start paying when your earnings go above a set level. At the moment this is £1,048 per month.

Your contributions are calculated as a percentage of your earnings above that amount.

A few things to know:

• National Insurance is worked out each time you are paid
• If your pay changes from month to month, the amount of NI you pay will change too
• Your employer also pays NI for you, but this doesn’t come out of your pay
• You can see your contributions on your payslip. At the end of the tax year, your P60 shows the total you and your employer paid.

 

If you are self-employed.

If you’re self-employed, National Insurance works slightly differently.

Most self-employed people pay Class 4 contributions. These start when your profits go above the Personal Allowance, currently £12,570.

If your profits are between £7,105 and £12,570, you won’t usually pay National Insurance. But you will receive National Insurance credits.

These credits help protect your record so you can still qualify for benefits such as the State Pension.

If your profits are below £7,105, you can choose to pay voluntary Class 2 contributions to protect your record. These are currently £3.50 per week.

If you earn over £50,270.

Once your earnings go above £50,270, the rate of NI on any income above that level drops to 2%.

This applies whether you are employed or self-employed.

How do you pay National Insurance?

How you pay depends on how you work.

If you are employed.

Your employer deducts NI from your wages through Pay As You Earn (PAYE). It is taken at the same time as income tax.

If you are self-employed.

You normally pay NI through your Self Assessment tax return. Some people also make Payments on Account during the year.

How many years do you need to pay?

Your National Insurance record affects whether you can receive the State Pension.

Under the rules in place since 6 April 2016:

• You usually need 35 qualifying years to receive the full State Pension
• You need at least 10 qualifying years to receive anything

If your record has gaps, you may be able to pay voluntary contributions to fill them. In most cases you can go back up to six years. There is more information about voluntary contributions on the government website.

When do you stop paying National Insurance?

You usually stop paying National Insurance when you reach State Pension age.

• Employees: stop paying on the day you reach State Pension age (currently 66)
• Self-employed: stop paying at the end of the tax year in which you reach State Pension age

For more detailed guidance, see the government’s information on National Insurance.