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National Insurance: All You Need to Know

National Insurance

National Insurance is a particular tax paid by most workers from the United Kingdom (UK). Curious about it? Keep scrolling and read on to learn more about how National Insurance works, including the contributory benefits of paying it, the contribution rates, how contributions could affect your State Pension, finding your designated National Insurance number, etc.

What is National Insurance?

National Insurance contributions are considered a tax on earnings or self-employed profits that you can pay through your gross wages if you’re an employed worker or by a self-assessment tax return if you’re a self-employed individual.

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The money you’re putting in will build your entitlement to several contributory state benefits, such as Maternity Allowance and State Pension, depending on whether you’re employed or self-employed. In addition, several social security benefits can only be accessed if you have sufficient National Insurance contributions.

Employment status, level of earnings, age, and residence status are just some of the vital factors that will determine what type and level of contribution you’re going to pay.

However, some people do not pay National Insurance contributions, especially those with low earnings and people already at state pension age.

How much is the National Insurance contribution rate?

The contribution rate will be dependent on what kind of National Insurance you’re paying. National Insurance has four major classes:

  • Class 1 – employees and employers
  • Class 2 – self-employed individuals
  • Class 3 – voluntary contributions
  • Class 4 – self-employed with profits over certain amounts

Class 1 National Insurance Contribution Rates

If you’re an employee, you will start making National Insurance contributions when you have weekly earnings of more than £190 (2022/2023). The contribution rate you’re going to pay is relative to how much you’re earning:

  • 13.25% of weekly earnings ranging from £190 to £967 (2022/2023
  • 3.25% of weekly earnings above £967 (2022/2023)

The percentages cover the contribution rate increase due to the government announced Health and Social Care Levy, which will be racked up from National Insurance throughout the 2022-2023 tax year.

Effective July 2022, Class 1 National Insurance’s lower threshold will climb to £242 weekly. This means you will only pay National Insurance contributions on an income equal to or more than £12,570 a year.

Class 2 National Insurance Contribution Rates

If you’re a self-employed individual, you might want to pay Class 2 National Insurance. Since April 2022, Class 2 National Insurance has a flat-rate contribution of £3.15 a week for profit equal to or more than £6,725 (the Small Profits Threshold) within a tax year.

It is important to note that paying the mentioned contributions is not mandatory for self-employed people with profits under the Small Profits Threshold. Paying Class 2 National Insurance contributions can still help build your entitlement to certain benefits despite lower profits.

Class 3 National Insurance Contribution Rates

Voluntary National Insurance contributions under Class 3 are designed to improve your National Insurance record. This specific class of National Insurance aims to entitle you to a higher State Pension income.

In order to be qualified for a full new State Pension, you’ll need to have National Insurance contributions for at least 35 qualifying years. It is due to people who have reached state pension age on or after April 6, 2016.

Anyone short of the stated requirement will receive minimized basic state pension. So, if you don’t qualify for the minimum qualifying years, you might want to pay Class 3 National Insurance contributions to enhance your pension privilege.

During the 2022-2023 tax year, Class 3 voluntary contributions demand a maximum weekly rate of £15.85. Previous tax years had different occurring rates.

Class 4 National Insurance Contribution Rates

If you’re a self-employed individual with a profit equal to or more than £9,880 (2022-2023), you’re eligible to pay Class 4 National Insurance contributions. If your profit exceeds the threshold, you’ll need to pay 9% on profits ranging from £9,880 to £50,270.

When to pay National Insurance?

Suppose you’re getting paid under a Pay As You Earn (PAYE) system. In that case, contributions will be automatically deducted from your salary before you receive it — may it be on a weekly, monthly, or other pay period basis.

On the other hand, assuming you are self-employed, your National Insurance contributions calculation will be based on your submitted self-assessment tax return. The contributions will be paid simultaneously as the settlement of your income tax.

Failure to pay National Insurance contributions on time will result in late payment penalties and interest on the amount due.

How to find your National Insurance number?

Usually, UK citizens receive their National Insurance number three months before they turn 16 years old. Unfortunately, this is not the situation for all. If you do not receive your National Insurance number within the prescribed period, you can dial 0300 200 3500 to seek advice from HM Revenue and Customs (HMRC). You would need to create a new online application if your parents or guardian did not sign a Child Benefit Form for you.

If you have lost and forgotten your National Insurance number, you can locate it in a stockpile of financial documents, such as payslips or letters from HMRC.

Take note that each National Insurance number is special and unique. The government uses the said number to determine how much tax you have already paid and subsequently how much you will obtain via State Pension.

Who qualifies for National Insurance credits?

Qualification for National Insurance credits will depend upon your circumstances. For example, if you are a parent or guardian of a child under the age of 12 and thereby claim Child Benefits or enjoy other benefits, such as Statutory Maternity/Paternity Pay or Carer’s Allowance.

You may need to apply for tax credits, but there are certain circumstances where these credits are already automatically added to your National Insurance record.

For further information about National insurance, such as contribution rates, voluntary contributions, viewing of your National Insurance statement and records, insurance credits, and progress of your State Pension, kindly browse GOV.UK.

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