Tax Glossary

Class 1 National Insurance

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Last updated on:
March 17, 2024

Class 1 National Insurance (NI) contributions are a type of tax paid by individuals who are employed in the UK. These contributions are one of several categories of National Insurance payments, each tailored to different employment statuses and income levels.

Categories of National Insurance

  • Class 1: Paid by employees earning more than £242 per week and below the state pension age. These contributions are automatically deducted from salaries by employers and qualify individuals for certain benefits like Jobseeker's Allowance (JSA).
  • Class 1A/1B: These are paid by employers on their employees' benefits and expenses, not deducted from employee salaries.
  • Class 2: Aimed at the self-employed with earnings above £6,725 per year, though this class will be scrapped from 6 April 2024.
  • Class 3: Optional payments made to fill any gaps in your NI record, available to anyone.
  • Class 4: For self-employed individuals whose earnings exceed £12,570 per year, paid through a tax return.

How Class 1 National Insurance Works

For earnings above £242 per week, Class 1 NI contributions are initially set at 10% of your salary. Once your earnings surpass £50,270 annually, transitioning you to a higher rate earner, the contribution rate reduces to 2%.

Key Points about Class 1 National Insurance

  • Employer Deduction: Your employer automatically deducts Class 1 NI from your salary each month under the PAYE (Pay As You Earn) system.
  • Employer’s Contribution: In addition to employee deductions, employers also contribute Class 1A or Class 1B NI, which are paid on employee benefits and are the employer's responsibility, not deducted from employee wages.
  • Below Personal Allowance: Class 1 NI contributions may still be deducted even if your earnings fall below the Personal Allowance threshold.
  • Mixed Employment Status: If you have both employed and self-employed income (e.g., from a side job), you may be liable for multiple classes of NI contributions.

For precise calculations of the National Insurance you owe, whether employed, self-employed, or both, utilizing dedicated calculators for employed and self-employed individuals can provide clarity and help in financial planning.

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