When do you pay National Insurance in the UK

You may have heard a little about National Insurance contributions (NIC) in the past but may not have fully understood it.

It is the term for the contributions paid to the government towards services paid by the state—for instance, things like state pensions and benefits.

It is a tax paid by the majority of UK workers. Read on to learn when you pay NIC, how to pay national insurance, how to pay national insurance as self-employed, how contributions could impact your State Pension and where to check how much you’ve paid.

Table of contents

●  What is National Insurance?
●  When will I pay National Insurance?
●  What age do you stop paying NI?
●  How much is National Insurance?
●  How long do I have to pay NI?
●  What is the National Insurance contribution rate?
●  How do you apply for a NI number?
●  How do you find your National Insurance Number?
●  Once you have earned enough for a pension, do you still have to pay national insurance?
●  How to report expenses and benefits to HMRC
●  Should I consider paying voluntary contributions?
●  Is employer National Insurance payable on employee benefits?
●  Do I need to report any changes?
●  Who can provide the best support on National Insurance?
●  Final thoughts

What is National Insurance?

National Insurance contributions are a tax on profits and income.

It increases your entitlement to various benefits, such as healthcare, maternity allowance and state pension, depending on whether you are self-employed or employed.

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Some social security benefits will depend on the payment of sufficient NIC.

Various factors can determine the level and kind of NIC are due, including:

●  age
●  level of earnings
●  earning status- employee or self-employed
●  residence status

When will I pay national insurance,

Does your employer pay you through a Pay As You Earn (PAYE) system? Then you won’t need to do anything because NIC will be automatically deducted from your salary.

It applies to every pay period. Depending on how frequently you receive payment, it can be weekly, monthly, or different periods.

This implies that you will pay additional National Insurance if your monthly income increases. However, even if your income is lower during other months of the tax year, you won’t be able to claim the extra back.

If you’re self-employed, your National Insurance contributions will be determined on your Self Assessment tax return. They’ll be paid along with the income tax.

What is National Insurance used for?
The National Insurance Fund is paid in a pot of tax money called the National Insurance fund, which was founded in 1948 to provide unemployment benefits, pensions, health insurance and other benefits to post-war Britons.

The state pension is the largest amount paid from the fund, costing more than £94 billion.

Additionally, It is also used to pay for various contributory benefits. Bereavement benefits are £536m, maternity allowance and parental pay £458m, jobseeker’s allowance £331m, administration costs £841m and employment and support allowance £4.5bn.

What age do you stop paying NI?

NI has to be paid by employees between the age of 16 and the state pension age.

If you are a worker, your last payment will be made during the weekly or monthly payment period until you reach state pension age. Employers continue to make payments for national insurance for employees over the state pension age.

If you are self-employed, the last Class 2 contribution will fall in the week you attain state pension age. However, Class 4 contributions must be made for the entire tax year.

How much is National Insurance?

The amount you’ll pay in National Insurance is based on what type of National Insurance you’re paying.

There are four main classes of NI:

●  Class 1 is paid by employers and workers
●  Class 2 is paid if you’re self-employed
●  Class 3 is a voluntary contribution
●  Class 4 is paid if you’re self-employed and have profited over a specific threshold.

How long do I have to pay NI?

You will continue to make NI contributions while you’re working right up till the state retirement age.

Currently, the retirement age is being adjusted. Today, the age is 68 for males and females.

Use the state pension calculator to calculate your exact state Pension age.   

What is the National Insurance contribution rate?

How much you pay for National Insurance depends on your income and whether you work for an employer or are self-employed.

Employees’ National Insurance rates are 13.25% on income of £12,570 to £50,270 per year ( £1,048 to £4,189 per month). Any income above £50,270 per year, or £4,189 per month, is 3.25%. There is no need to pay National Insurance on your first £12,570.

Your annual self-employment profits are used to determine your National Insurance contributions. The changes in National Insurance are subjected to self-employed individuals who earn more than £9,881 in profits yearly.

For profits between £9,881 and £50,270, the National Insurance rate is 10.25%; for profits beyond £50,270, it is 3.25%.

If your self-employment profits are £6,725 or higher, you must also pay an additional £3.15 per week.

How to pay national insurance?
First, you should ensure that you are eligible. This implies that you must be a UK resident with the legal right to work there, already have the offer to start a job or actively seeking work.

The further procedure is to apply online and provide your Identity. To do this, you’ll need either:

●  A biometric residence permit (BRP)
●  A national identity card from Norway, Switzerland or Liechtenstein
●  A national identity card from a country in the EU 
●  A valid passport from any country
●  If you do not have these documents, you can still verify your Identity, but you might have to make an appointment.

You can submit your digital photos of yourself and documents to establish your Identity. You’ll receive an email with an application reference number once your identification is verified.

How do you find your National Insurance Number?

If you are employed, your NI number can be found on your payslips, your P60 annual tax statement, and any other tax-related correspondence.

Your National Insurance number can be found online in the National Insurance section of your personal tax account.

If you’ve misplaced your NI number and cannot find it in any of the locations listed above, you must contact HMRC. Although they won’t be able to give you the number over the phone, they will send it to you by mail within 15 days.

Fill complete form CA5403 online, print it out, and mail it to the address provided, or call the National Insurance numbers helpline at 0300 200 3500 to contact HMRC about a missing NI number.

Once you have earned enough for a pension, do you still have to pay national insurance?

Yes, you do. National Insurance (NI) serves two distinct purposes. Its primary objective is a tax on earned income. It is required to be paid on any employment where you make more than £242 per week. It also determines how much you’ll receive as your State Pension.

To receive a full pension once an individual reaches state pension age, they currently need 35 years of NIC contributions. However, even if you have paid 35 years’ worth, you must continue to pay National Insurance if you are employed because it is a tax that generates about £125 billion annually.

How to report expenses and benefits to HMRC

When an item or benefit is not excluded from NIC liability or offered as part of a salary sacrifice plan, it is typically reported via the monthly payroll. Expenses that are not “payrolled” must be declared on a P11D.

To streamline reporting, employers can use flat rates or scale rates to reimburse employees rather than actual costs incurred. Scale rates include:

●  HMRC permitted fuel advisory rates;
●  Rates that HMRC agreed to in writing.

You can request a customized scale rate approval notification on the GOV.UK website. It is not required to inform HMRC of expenses and benefits reimbursed using approved scale rates.

Should I consider paying voluntary contributions?

If your National Insurance record, for instance, contains gaps, you may decide to pay voluntary Class 3 National Insurance contributions.

You will get credit for that payment period for voluntary contributions toward some state entitlements, such as a credit toward the new flat-rate state pension.

The Class 3 contribution rates are much higher than Class 2 at £15.85 per week.

If you want to review your national insurance credits to date, you can contact HM Revenue and Customs (HMRC). Note that from April 2016, the new flat-rate pension applies.

It is critical to understand the number of ‘credit years’ to qualify for the full amount of state pension:

●  30 years if you attain State Pension age on or after 6 April 2010 but before 6 April 2016, or
●  Thirty-five years if you reach State Pension age on or after 6 April 2016.

We advise you to consult an experienced accountant for additional guidance before making a voluntary contribution.

Is employer National Insurance payable on employee benefits?

Employer’s National Insurance Contributions are payable on a few employee benefits. This depends on the advantages being offered:

●  Class 1 NICs may be paid typically through PAYE. Depending on the benefit, tax may or may not need to be paid.
●  If the benefits weren’t handled via payroll, you might need to report them at the end of the year. Class 1A NICs may or may not be payable on the value of the benefit. Additionally, this is determined by the benefits in question.

Additionally, there is an exemption for some “trivial advantages” worth less than £50 each. Directors of businesses with fewer or five shareholders can’t get more than £300 of trivial benefits in a tax year.

Employer National Insurance contributions are complex to discuss in detail. The majority of businesses use payroll services or payroll software to handle this.

Remember that almost all companies are now needed to report PAYE data in real-time.

Do I need to report any changes?

The HMRC National Insurance Contributions Office must be informed of specific changes in circumstances. Any of the following changes should be reported to them:

●  You become widowed, or your civil partner dies.
●  change your name by deed poll
●  register a civil partnership or get married
●  move house
●  dissolve a civil partnership or get divorced

Your changes will make it easier for HMRC to track your NI contributions and provide them with the most recent information if they ever need to contact you. You will need accurate address information to claim your state pension when you are eligible.

You can email HMRC at www.gov.uk to notify any changes you make, or you can call the National Insurance Helpline at 0300 200 3500 for employees and 0300 200 3505 for self-employed individuals.

Who can provide the best support on National Insurance?

Understanding your NI status can be challenging, particularly given the recent changes. So who can assist you?

When in doubt about your tax or financial affairs, it’s always a good idea to get professional advice. However, when it comes to NI, you can consult a financial adviser or an accountant.

Simply stated, accountants are experts who concentrate on creating financial records, yearly accounts, and tax returns.

Everything revolves around the money entering and leaving your accounts, ensuring you’re following tax regulations and avoiding potential problems. An accountant can genuinely assist you in streamlining your finances, cutting expenses, and developing a growth strategy.

A financial advisor tends to concentrate more on the big picture than on regular economic activity. With the help of opportunities, strengths, and weaknesses, they assist you in focusing and achieving your strategic goals.

Speaking with a qualified accountant would make sense because NI is a bit complicated. They will be more than capable of directing you and ensuring that you follow the correct procedures at each stage.

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Final thoughts

National Insurance (NI) contributions can be paid through your earnings or a self-assessment tax return, and the amount you must pay is based on several criteria, including the type of your employment.

Knowing how much you should be paying for National Insurance is critical to avoid paying too much or too little because not everyone has to pay NI; some people are exempt.

123Financials Editorial Team
The 123Financials editorial team is composed of seasoned finance and accounting experts with a combined experience of over 20 years. Specializing in UK finance, accounting, and tax-related content, our team is dedicated to delivering insightful and practical advice to startups and small businesses. With a strong background in both the theoretical and practical aspects of financial management, we ensure that our readers stay informed and empowered to make sound financial decisions. Whether it’s navigating the complexities of UK tax laws or providing strategic financial planning tips, our team is committed to excellence and accuracy in every article.