Tax Glossary

National Insurance (NI)

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Last updated on:
March 17, 2024

National Insurance (NI) stands as a fundamental contribution to the UK's welfare system, serving as a crucial bridge to accessing a variety of state benefits, including the State Pension.

Who is Required to Pay NI?

National Insurance contributions are mandated for individuals aged 16 and above who either:

  • Are employed with earnings exceeding £242 weekly,
  • Are self-employed with annual profits of £6,725 or more (notably, from 6 April 2024, only Class 4 contributions are required for the self-employed).

Employers also contribute NI on behalf of employees earning over £242 per week. The obligation to pay NI ceases upon reaching the State Pension age.

Classes of National Insurance

NI contributions are categorized into distinct classes, each tailored to different employment statuses:

  • Class 1: Deducted by employers for employees earning more than £242 per week, under the State Pension age.
  • Class 1A or 1B: Paid by employers on employee benefits.
  • Class 2: For self-employed individuals, payable via Self Assessment (notably, this class will be discontinued from 6 April 2024).
  • Class 3: Voluntary contributions to fill any gaps in your NI record.
  • Class 4: For self-employed earners making more than £12,570 annually, also paid through Self Assessment. Noteworthy changes are expected from 6 April 2024, with a reduction in rates.

How to Fulfill Your NI Obligations

For employees, NI contributions are seamlessly integrated into the PAYE system, ensuring automatic deduction from wages. On the flip side, self-employed individuals navigate their contributions through annual Self Assessments. It's imperative for both employed and self-employed taxpayers to ensure the accuracy of their tax codes to prevent discrepancies in their NI and Income Tax contributions.

In essence, National Insurance is a cornerstone of the UK's social security system, enabling access to vital state benefits. Understanding your NI obligations is key to ensuring you're adequately contributing to and benefiting from the system.

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