PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

National Insurance

National Insurance

For most working people, National Insurance (NI) is something that is deducted from your pay or comes out of your bank account on direct debit. But are you really clear about what you are paying and why? In some ways National Insurance is like income tax, but there are significant differences. National Insurance:

  • Can be compulsory or voluntary
  • Only applies to people between certain ages (i.e. between 16 and state retirement age)
  • Gives state benefit right – and different sorts of National Insurance give different rights
  • Applies to earned income – not to all income, so it does not apply, for example, to investment income
  • Is charged per job, not on your total income like income tax
  • Is not a ‘tax’ and so National Insurance debts may not be identical to taxes when it comes to collection

There are currently four main classes (types) of National Insurance; but class 2 is due to be abolished in 2018. Each type comes with its own rules. You can even pay different sorts of National Insurance at the same time. In the sections below we consider the various ways National Insurance (NI) might affect you. For a  table of current and recent NIC thresholds and rates, click here.

National Insurance for employees and employers:
Class 1 National Insurance is paid by employees and employers, once pay reaches a certain level. Many employers can claim Employment Allowance, a credit of up to £3,000 against employer’s National Insurance costs.

There are special thresholds for employer’s National Insurance covering employees aged under 21 or under 25 in apprenticeships – see here.

National Insurance for the self-employed:
Self-employed people are liable to pay Class 2 National Insurance and Class 4 National Insurance. This is collected through self-assessment on the annual tax return. There is a lower profits limit, below which you do not need to pay class 2. Class 2 is due to be abolished in 2018. For rates see here.

If you are employed and self-employed:
If you are employed, you may be liable to pay class 1 National Insurance as an employee as well class 2 and class 4 National Insurance as a self-employed person.