National Insurance (NI) is an essential part of the UK’s tax system, but it is often misunderstood. If you are new to the UK or starting your first job, understanding National Insurance contributions can be confusing, and you may be left wondering – how is National Insurance calculated? In this blog post, we will explain what National Insurance contributions are and how they differ from income tax, what services NI payments fund, National Insurance rates, and finding your National Insurance number.

 

What is National Insurance and how is it different from income tax?

National Insurance (NI) is an essential part of the UK’s tax system, but it is often misunderstood. If you are new to the UK or starting your first job, understanding National Insurance contributions can be confusing, and you may be left wondering – how is National Insurance calculated? In this blog post, we will explain what National Insurance contributions are and how they differ from income tax, what services NI payments fund, National Insurance rates, and finding your National Insurance number.

 

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What services do National Insurance CONTRIBUTIONS fund?

National Insurance contributions go towards a range of services and benefits provided by the UK government. The main services and benefits that NI payments fund are:

  • The State Pension.
  • Jobseeker’s Allowance.
  • Employment and Support Allowance.
  • Maternity Allowance
  • Widowed Parent’s Allowance.
  • Bereavement Support Payment.
  • The National Health Service (NHS).
  • Personal Independence Payment (PIP).
 

Who pays for National Insurance and what are National Insurance rates?

If you are employed, you and your employer will both have to pay National Insurance contributions. The amount you pay will depend on how much you earn. The current rate for employees is 12% on earnings between £242 and £967 per week, and 2% on earnings above £967 per week. Your employer will also pay 13.8% of your earnings above £175 per week.

If you are self-employed, you will need to pay Class 2 and Class 4 National Insurance contributions. Class 2 contributions are a fixed weekly amount of £3.45, and Class 4 contributions are based on your profits. The current rate for Class 4 contributions is 9% on profits between £12,570 and £50,270 and 2% on profits over £50,270.

For those working abroad, you can read our blog post on overseas NI contributions.

 

What are the benefits of paying National Insurance contributions?

Paying National Insurance contributions can provide you with access to a range of state benefits, including the State Pension, maternity and paternity pay, and sick pay. It can also help you to qualify for contributions-based Jobseeker’s Allowance and Employment and Support Allowance if you are unable to work due to illness or disability.

In addition to providing you with access to state benefits, paying National Insurance contributions can also help you to build up a National Insurance record, which is used to calculate your State Pension entitlement. To qualify for the full State Pension, you will need to have paid or been credited with enough National Insurance contributions.

 

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Can I make voluntary NI contributions?

If you are not employed or self-employed, you may still be able to make voluntary National Insurance contributions. This can be beneficial if you have gaps in your National Insurance record, for example, if you have taken time out of work to care for children or have lived abroad.

Voluntary contributions can help you to build up your National Insurance record and may help you to qualify for certain state benefits, including the State Pension. The amount you pay and the benefits you receive will depend on the type of voluntary contributions you make. 

There are two types of voluntary NI contributions:

Class 3 contributions:
These are voluntary contributions that you can make to fill gaps in your National Insurance record. The current rate for Class 3 contributions is £15.40 per week. You can make Class 3 contributions for any tax year in which you have a gap in your National Insurance record.

Class 2 contributions:
These are voluntary contributions that you can make if you are self-employed but have not earned enough to be required to pay Class 2 contributions. The current rate for Class 2 contributions is £3.05 per week. Paying Class 2 contributions voluntarily can help you to build up your National Insurance record and qualify for state benefits.

 

It is worth noting that voluntary contributions may not always be the best option for everyone. Before making any voluntary contributions, you should speak to a financial advisor or contact HM Revenue and Customs (HMRC) for advice on your individual circumstances.

 

How to find your National Insurance Number

Your National Insurance Number (NIN) is a unique identifier used by HM Revenue and Customs (HMRC) to track your National Insurance contributions and ensure that you are paying the correct amount. If you are unsure of your NIN, there are several ways to find it:

  1. Check your payslip – Your NIN should be printed on your payslip. If you are employed, your employer should have your NIN on file and include it on your payslip.
  1. Check official documents – Your NIN may be listed on official documents such as your P60, tax return, or any correspondence you have received from HMRC.
  1. Contact HMRC – If you are unable to find your NIN, you can contact HMRC and request that they send you a letter confirming your NIN. You will need to provide personal information such as your name, date of birth, and address to verify your identity.
  1. Use the government’s online service – You can use the government’s online service to find your NIN if you have a UK passport or a UK driving licence. You will need to create an account and provide personal information to verify your identity.

It’s important to keep your NIN safe and secure, as it is a valuable piece of personal information that can be used to steal your identity. Never share your NIN with anyone unless you are sure that it is necessary, and always keep it private.

 

Need Assistance from an Accountant?

National Insurance contributions are an important part of the UK’s tax system, and they fund a range of state benefits and services. Understanding National Insurance can be confusing, but it is essential to ensure that you are paying the correct amount and have access to the state benefits that you are entitled to.

If you are unsure about your National Insurance contributions or entitlement to state benefits, you should speak to a financial advisor. Our CIMA-registered accountants at CIGMA Accounting would be happy to assist with any of your personal or business accounting needs. Contact us via the form below for a free quote.


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