by Sally Sparrow
National Insurance (NI) is a system in which both workers and employers make contributions to help pay for a range of state benefits, including state pensions and the National Health Service (NHS).
The system dates back to the start of the 20th century, when workers would voluntarily make contributions to insure themselves against illness and unemployment. Following the Second World War, the system was expanded substantially, and it has been amended several times over the years.
As of 2013, NI accounts for around one fifth of all government revenue, with most workers required to contribute at least some of their earnings.
Who Has to Pay National Insurance?
If you’re working, either as an employee or in a self-employed capacity, and if you’re over the age of 16, then, unless you earn below a certain amount, you will have to pay National Insurance Contributions (NICs).
- Employees and Agency Workers
If you’re an employee, whether it’s for a company or a not-for-profit organisation, or if you work for an agency, you will most likely pay Class 1 NICs. That is, your contributions will be collected directly via the PAYE (pay as you earn) system, alongside your income tax obligations.
- Self-Employed Workers
If, however, you are self-employed (for instance, you could be a supply teacher or a freelance editor) then you will normally pay Class 2 NICs. The best way to do this is to set up a standing order for a fixed amount, with contributions paid either weekly or monthly. At the end of the financial year you may then also be required to pay extra should your self-employed profits be above a certain amount.
Note that students over the age of 16 are not exempt from making NICs; if you do paid work and earn over a certain amount each week, then you’ll have to pay.
How Much Do I Have to Pay?
The amount you are required to pay in National Insurance will depend on your employment status, as well as on how much you earn.
- Class 1 Contributions
If you pay Class 1 NICs (that is, if you are an employee or agency worker) then the amount you pay is calculated on how much you earn above a certain threshold. For the financial year 2013-14, this threshold is £149 a week, or £7,750 a year.
If you earn below this threshold, you are not required to make any NICs. If, you earn above this, you will be required to pay 12% of your earnings between £7,750 and £41,450. On any earnings above £41,450, you will be required to pay an extra 2% in NICs.
- Class 2 Contributions
If you pay Class 2 NICs (that is, if you are self-employed), then you are required to pay a fixed rate of £2.70 per week, as of the 2013-14 financial year. Should your profits come to more than £7.755 a year, you will also be required to pay Class 4 contributions. Class 4 NICs are 9% of all taxable profits above this threshold, with a further 2% to pay on any profits above £41,450 a year.
Should your profits as a self-employed worker come to less than £5,275 for the year, you will not be required to make any contributions to your NI. However, failing to pay in on a voluntary basis will mean that a year will go by without you building up your benefit entitlements, potentially limiting the amount you can claim when you are unable to work or when you retire.
- Voluntary Contributions
If you’re not working, if you’re not earning enough to be eligible for Class 1 or Class 2 NICs, or if you’re living abroad, you may still want to make voluntary contributions in order to build up your benefits entitlement. Since these contributions are voluntary, you are free to pay as little or as much as you like, though remember, the more you do pay into the system, the more you may be entitled to should you fall ill or be without paid work.
Applying for a National Insurance Number
All workers in the UK have their own National Insurance Number (NINO). This is unique to you and is used to keep track of everything you contribute and also any benefits you are paid. You are legally obliged to apply for a NINO once you start work, though you may want to get this sorted before you start looking for your first job.
The easiest way of getting a NINO is by getting in touch with your nearest HM Revenue and Customs (HMRC) office, or by calling the National Insurance Registrations Helpline on 0845 915 7006.
All National Insurance Numbers are made up of 9 characters, with these always being 2 letters followed by 6 numbers and then 1 final letter. Should you move house or change your name, or if your husband, wife or civil partner dies, then you will need to inform the HMRC, though your NINO will remain unchanged.
In summary:
1. National Insurance (NI) is a system in which both workers and employers make contributions to help pay for a range of state benefits.
2. As of 2013, NI accounts for around one fifth of all government revenue, funding the NHS and state pensions, among many other things.
3. If you’re working, either as an employee or in a self-employed capacity, and if you’re over the age of 16, then, unless you earn below a certain amount, you will have to pay National Insurance Contributions (NICs).
4. If you’re an employee or if you work for an agency, you will most likely pay Class 1 NICs, with contributions collected directly via PAYE.
5. If, however, you are self-employed then you will normally pay Class 2 NICs, usually by standing order.
6. For the financial year 2013-14, this threshold is £149 a week, or £7,750 a year; if you earn below this threshold, you are not required to pay NI.
7. If you’re not working or if you’re not earning enough to be eligible for NI, you may still want to make voluntary contributions in order to build up your benefits entitlement.