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National Insurance (NI) has been in the news recently after changes to National Insurance were announced in the 2024 Spring Budget.
National Insurance is a tax which you may pay alongside Income Tax. However, compared to Income Tax, National Insurance can seem fairly complicated. This complexity, plus the perceived unfairness of workers having to pay two different taxes, was a factor which contributed to the changes to National Insurance announced in the 2024 Spring Budget.
Depending on whether you are employed or self-employed – and depending on how much you earn – you will likely pay National Insurance through your wages or via a self-assessment tax return.
Not everyone has to pay National Insurance, and some people are exempt, so it’s important to know how much you should be paying. Otherwise, you may end up paying too much or too little.
What is National Insurance?
National Insurance is a tax paid by most workers. If you are a pay-as-you-earn (PAYE) employee, National Insurance contributions (NICs) will automatically come out of your wages – just like Income Tax. If you are self-employed, you will probably pay NICs through your yearly self-assessment tax return.
How much National Insurance you pay depends on how much you earn and your personal circumstances. You can find out the current National Insurance rates at Gov.uk.
Some people do not pay National Insurance, including those who are at the state pension age, and some on low wages.
How much is National Insurance?
How much you pay in National Insurance depends largely on how much you earn.
If you’re employed
The National Insurance contributions paid by employees are referred to as Class 1 National Insurance contributions.
In the 2024 Spring Budget, Chancellor Jeremy Hunt announced that Class 1 National Insurance contributions will be reduced by two percentage points for the 2024/2025 tax year.
In the light of these changes, Class 1 National Insurance rates for most people for the 2024/25 tax year are:
- 8% on income of £242 to £967 a week (£1,048 to £4,189 a month)
- 2% on income over £967 a week (£4,189 a month)
You will not pay any Class 1 National Insurance on earnings below these thresholds.
If you’re self-employed
If you’re self-employed, your National Insurance contributions will be calculated using your annual profits.
Self-employed workers previously paid two kinds of National Insurance Contributions, known as Class 2 and Class 4 NICs.
Class 2 contributions were set at £3.45 per week for the 2023 to 2024 tax year. However, as of 6 April 2024, Class 2 NICs have been abolished entirely.
In the 2024 Spring Budget, Chancellor Jeremy Hunt also announced reductions in Class 4 National Insurance contributions.
In light of these changes, Class 4 National Insurance rates for self-employed workers in the 2024 to 2025 tax year are:
- 6% on profits between £12,570 and £50,270
- 2% on profits over £50,270
You will not pay Class 4 National Insurance if your profits are below £12,570.
» MORE: Recent changes in National Insurance rates
What does National Insurance pay for?
National Insurance is different from income tax, even though it works in a similar way.
The money paid for this type of insurance goes into a government fund that is used to pay for a number of things, including state benefits such as the state pension, statutory sick pay and maternity leave.
To qualify for benefits such as the state pension, you need to have paid National Insurance contributions for a set period. If you haven’t done this, it is possible to make voluntary payments.
How can you find your National Insurance number?
In the UK, when you turn 16 you are usually automatically sent a National Insurance number. If you didn’t get one you can apply by calling the application line on 0800 141 2075.
If you have lost your National Insurance number, you can usually find it on financial documents such as letters from HM Revenue & Customs (HMRC) or on wage slips.
The government’s Department for Work and Pensions (DWP) handles National Insurance numbers. Each National Insurance number is unique. The number will tell the government how much of the tax you have paid and therefore how much you will receive through your state pension.
How to check your National Insurance record
You can check how much you’ve paid in National Insurance online, using the government website. It will give you details including the following:
- All the National Insurance you have paid throughout your life.
- If you have received any National Insurance credits and how much they are worth.
- Any gaps in contributions such as years when you didn’t pay National Insurance.
- How you can pay voluntary contributions and how much they will cost.
Voluntary National Insurance contributions
You may be able to make voluntary contributions for National Insurance to fill any gaps you may have. You might do this to make sure you receive your full state pension, for example, or if you are self-employed and want to apply for maternity or paternity pay.
Before you go ahead, check your record so you know that you are eligible to make voluntary payments, and how much you will pay. The cost of voluntary ‘Class 3’ contributions is frozen until 5 April 2025 at £17.45 a week.
How many years of contributions are needed for a full state pension?
You need 35 years of contributions or credits to get the full state pension when you retire. These don’t need to be consecutive years, and you can make voluntary payments that can count towards your entitlement.
If you’ve made fewer than 35 years’ worth of contributions, you will get a state pension based on the amount you’ve paid in. If that has been for under 10 years, you may not qualify.
Who qualifies for National Insurance credits?
Whether you are eligible for National Insurance credits depends on your circumstances. For example, you might qualify if you are receiving benefits such as Jobseekers’ Allowance or Carers’ Allowance. There is a full list of exemptions at Gov.uk.
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by Kristina Fox