After the National Insurance Act of 1911 was passed, National Insurance (NI) became a law. Employers and employees in the UK contribute to NI, which is used to pay for various government benefits like the state pension and the National Health System (NHS).
This blog post is to help you to understand more about what NI is used for,
what does NI pay for?
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Table of contents
Why do I need to pay NI?
Who pays National Insurance?
What are the different National Insurance classes?
What is a NI number, and what is it for?
How can you apply for a NI number?
How is the amount of NI owed calculated?
What are the benefits of paying National Insurance?
Final thoughts
Why do I need to pay NI?
If you pay National Insurance, you are eligible for several state benefits. The amount you pay as NI depends on whether you are working, self-employed, or making voluntary contributions.
To be eligible for the state pension, you must pay National Insurance for a qualifying number of years. You might not be eligible for some benefits if you haven’t made the required contributions.
You usually need 10 qualifying years on your NI record to get any State Pension. You need 35 qualifying years to get the full new State Pension. You will get a part of the State Pension if the qualifying years are between 10 and 35.
| Qualifying years | State pension |
| Less than 10 years | Nil |
| 10-35 | Partly |
| Full |
Who pays National Insurance?
National Insurance is paid by employees, self-employed workers as well as employers. When you reach state pension age, you are no longer required to pay it, which lowers your tax bill.
In certain circumstances, such as if you work as a carer or make a modest salary, you may be eligible for NI credits. You may make voluntary contributions if you are not currently contributing to National Insurance.
As long as you are employed, up until the state retirement age, you will continue to contribute to the National Insurance. The current retirement age for anyone born after 5 April 1978 is 68 years.
What are the different National Insurance classes?
The term “classes” refers to many classifications for NI. The class you pay for depends on your job status, your income, and whether or not your national insurance record contains any gaps.
| National Insurance class | Who pays? |
| Class 1 | workers earning more than £190 per week and under the state pension age- are automatically deducted by their employer. |
| Class 1A or 1B | Employers pay these directly on their workers’ benefits or expenses |
| Class 2 | Self-employed individuals – you do not have to pay if your annual income is less than £6,725; however, you may choose to do so (but with voluntary contributions) |
| Class 3 | Voluntary contributions are payments you can make to fill or prevent gaps in your National Insurance record. |
| Class 4 | Self-employed individuals making more than £9,881 per annum |
What is a NI number, and what is it for?
A NI number is a type of individual tax identification that allows the taxes taken from a person to be associated with them to show their eligibility for particular state benefits.
NI payments help to fund healthcare, benefits, statutory sick pay, maternity and paternity leave and state pensions.
A person’s employment status determines which payment classes (from 1 to 4) they come under. Employed individuals who are under the state pension age pay Class 1 contributions.
Class 1 National insurance consists of subclasses 1A and 1B, which employers must pay on some workers’ benefits like health insurance and company cars, as well as a few other lump sums like redundancy payments.
How can you apply for a NI number?
If you are a citizen of the United Kingdom, you will get an NI number automatically before you turn 16.
If you haven’t received it and are under 20, contact the National Insurance helpline on 0300 200 3500. If you are older than 20, contact the
NI helpline on 0800 141 2075.
The office is open Monday to Friday. You’ll require ID and may need to attend an interview.
If you are moving to the United Kingdom, you may have a NI (National Insurance) number provided on your biometric residence permit. If not, you should apply once in the UK by contacting the helpline on 0800 141 2075.
How is the amount of NI owed calculated?
Most NI income comes from employee contributions, deducted from salaries before taxes. In addition to self-employed people paying NI on their wages, employers also contribute to NI.
The amount of NI is determined by wages, employment status (self-employed or employed), and age. There are different rates of NI based on these individual conditions.
For instance, self-employed individuals pay a greater rate than those employed. Employees earning less than £242 per week are exempt from paying NI. On the other hand, a self-employed individual making more than £6,725 annually must pay a higher rate of NI.
As a person’s income rises, so does the amount of National Insurance owed.
What are the benefits of paying National Insurance?
National Insurance refers to a system of contributions and taxes that offer certain benefits for individuals in the United Kingdom. The main goal of National Insurance is to provide healthcare and financial assistance for those who need it the most.
It also gives benefits to families who have lost a breadwinner and retirees. Also, it helps to fund public services and National Health Service. Most people are required to pay National Insurance. Doing so can help ensure that critical public services are appropriately supported while also offering you and your family significant financial security.
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Final thoughts
Although it might be challenging to understand, national insurance is crucial if you operate as an employer or work as an employee or sole trader in the UK.
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.
So we hope this blog post will give you a clear idea about everything you need to know about NI.
