National Insurance explained

National Insurance is paid to give you an entitlement to certain benefits.  These include state pension, contribution based Jobseekers Allowance and Employment and Support Allowance.

National Insurance is paid by both employees and the self-employed.  The classes paid are different and this is where I believe the confusion arises. There are 4 different classes of National Insurance contributions that can be paid. Here is a description of each:

Class 1 national insurance (employed)

Paid by employees and deducted at source from your pay

Class 2 national insurance (self-employed)

Paid by self employed people with profits of more than £5,965 per year (although you must apply for exemption and are not automatically exempt even if your profit is below this level)

Class 3 national insurance (voluntary)

Voluntary contributions that can be paid to avoid gaps in contribution history. This will mean you keep your entitlement to certain benefits

Class 4 national insurance (self-employed)

Paid by self employed people with profits of more than £8,060 per year

Current rates can be found here: Rates

Employee National Insurance is calculated by your employer and deducted from your pay before you receive it. Your employer pays it to HMRC on your behalf. You need do nothing at all. But you can check whether your contributions are up to date using the online form here: NI contributions check

If you are self-employed then class 2 contributions will shortly be payable at the same time as your self assessment tax. However you may have been paying either twice per year on receipt of a statement or monthly by direct debit. This will change in 2016 to be in line with self assessment tax, meaning that NI due in 2014-2015 will be payable by 31st January 2016.

Whether you are employed or self employed Bruton Young Bookkeeping can help you to understand how NI affects you. If you need more information please contact us.

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  1. Class 4 National Insurance to rise by 2% in the next 2 years - […] See our previous post explaining National Insurance, including Class 4 here […]

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