National Insurance

For most working people, National Insurance 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 four main classes (types) of National Insurance. 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 rates, click here:   National Insurance Contributions

National Insurance for employees and employers:
Class 1 National Insurance is paid by employees and employers, once pay reaches a certain level.

National Insurance for the self-employed:
Self-employed people need to register to pay National Insurance. You may be liable to pay Class 2 National Insurance and Class 4 National Insurance.

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.