National Insurance
National Insurance is a compulsory insurance that acts like a tax. Individuals who pay National Insurance qualify for a state pension and various benefits. There are 4 classes of National Insurance:
- Class 1
- Class 1a
- Class 2
- Class 3
- Class 4
Current rates of NI can be found on HMRC’s website.
Class 1
Primary: Payable by employees on income earned through employment. Deducted by the employer and paid over to HMRC on the employee’s behalf.
Secondary: Payable by employers on top of the employer’s salary. Calculated by the employer and paid over to HMRC.
Class 1a
Payable by employers on taxable benefits provided to employees. Paid to HMRC once a year.
Class 2
Payable by self employed individuals, currently at £2.40 per week. This ensures their NI contribution record is kept up to date.
Individuals making less than £5075 profit per year can apply for a Small Earnings Exception by completing form CF10. This means they don’t have to pay the Class 2 contributions – but it also means they aren’t contributing to their NI record, unless they are paying another form of National Insurance, such as Class 1 from a job.
Class 3
Voluntary contributions payable by individuals unable to keep up their NI contribution record any other way. Currently £12.05 per week.
Class 4
Payable by self employed individuals. A percentage of profits paid, like income tax, by 31st January following the end of the tax year and calculated on a tax return. Currently 8% on profits from £5715 to £43875 per year and 1% on profits above this.
