National Insurance (NI) was originally a separate charge on working income intended to pay for certain state benefits such as the old age pension and unemployment benefits. You weren’t entitled to the benefits if you didn’t pay it, and this policy for eligibility remains the same. It is not, however, a separate fund invested to produce those benefits – it simply goes into the general Treasury coffers.
Where income tax is paid on all of your income (including employment, savings, investments, etc), National Insurance is only charged on earned income. This means that you only pay it on the money you make through your employment, whether you are an employee or self-employed.
How much do you pay?
The rates can vary from year to year but they are based on a percentage of your income above certain levels (currently £12,570 per year, the same as the income tax personal allowance).
Below this but above a minimum threshold, you can be credited with contributions even if you don’t pay them on your low income (https://www.gov.uk/national-insurance-rates-letters ). You can also get credits in other situations such as unemployment or while bringing up children (https://www.gov.uk/national-insurance-credits ).
Note that your employer also pays NI contributions for employing you but these don’t affect your pay.
The self-employed have their own system of paying and levels of contributions (https://www.gov.uk/self-employed-national-insurance-rates), but not necessarily the same benefit entitlements (https://www.gov.uk/national-insurance/what-national-insurance-is-for ).
How do you pay?
If you are in Pay As You Earn (PAYE), your employer will deduct the NI contributions from your pay along with the income tax. If you are self-employed, you will pay via your self-assessment tax return annually (and through Payments on Account, if applicable).
How many years must you pay?
Under the rules in place since 6 April 2016, anyone reaching state pension age from then on must generally have 35 full years of contributions to receive the full new state pension with a minimum of 10 years to get anything at all. It is possible to make up any shortfall in contributions with voluntary contributions going back 6 years (with a couple of exceptions to this rule). You should seek advice from the Department for Work and Pensions (DWP) or an independent agency to decide if this is the best course of action, read more here: https://www.gov.uk/voluntary-national-insurance-contributions
When do you stop paying NI contributions?
If employed, you stop paying on your state pension age birthday (66). If self-employed, you stop paying at the end of the year that you reach state pension age.
For detailed information look at: https://www.gov.uk/government/collections/national-insurance-detailed-information
