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Beginner's guide to benefits: national insurance contributions (NIC)

Index

You can read through this information sheet, or go directly to the sections you want to read by clicking on these links:

• What is a national insurance number?
• How do I get a national insurance number?
• What are national insurance contributions?
• Employees
• Self employed
• How do I pay my national insurance contributions?
• What benefits do my national insurance contributions (NIC) pay for?
• Frequently asked questions
• Acknowledgement

• What is a national insurance number?

  Your national Insurance number is unique to you throughout your life but it is not a form of identity. It is made up of 2 letters, 6 numbers and a final letter for example ZY 98 76 54 A.

  Everyone who wants to work in the UK must have a national insurance number. To obtain a national insurance number, you must be 16 or over and resident in Great Britain or Northern Ireland. 

  You can start work without one but you must then apply immediately. The law requires you to apply for a number if you do not already have one and you are working or are intending to work.

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  How do I get a national insurance number?

  You need to contact the Department for Work and Pensions (DWP) office nearest to where you live or work and ask for an appointment to be interviewed for an national insurance (NI) number. You will need to take some proof of identity with you when you go but full details of this will be provided before your interview. 

  You can find the telephone number and textphone number of the local DWP office in your telephone directory or Yellow Pages. 

  There is some useful information on how to apply for a national insurance number (link opens in a new window) on the Directgov website. 

  Once your application is successful, you will receive a plastic NI card. Take good care of this as it is your reminder of your NI number and you will need to use it when you contact HM Revenue and Customs (HMRC) or DWP. As soon as you have your NI number, you should tell your employer.

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  What are national insurance contributions (NIC)?

  National insurance helps to pay for some state benefits including retirement pensions. Your national insurance contributions (NIC) earn you the right to receive certain benefits.

  Whether you are working for an employer or are self employed and working for yourself or for a partnership will affect the type of contribution you pay.

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  Employees

  Employees pay Class 1 national insurance contributions if their earnings are above the lower limit of £139 per week (2011/2012 Tax Year).

  If your income falls below this, you will not need to pay any contributions. State benefit entitlement begins where your wage is over £102 per week.

  You can see how to work out your own NIC in the example below.  

  Example

  Anya earns £179 a week from her job in a chemist's and a further £75 a week as a part-time dental assistant. She will pay no NIC on the wages she gets from the dentist but she will have to pay NIC on the chemist wages. She will pay each week £179 less the lower limit of £139 = £40 at 11%, that is £4.40 (Class 1 NIC). This will be taken from her wages together with any income tax before Anya receives them.

  Self employed

  If you are self-employed you pay two types of NIC. A weekly stamp (Class 2) and another based on the level of your profits (Class 4). You can also pay voluntary NIC (Class 3).

  If you are self employed and you think your profits will be less than a set limit - £5,315 for 2011/12 - you can elect not to pay any contributions during the year and then the position can be reviewed once you know what your profits were for that tax year. This is called a Small Earnings Exception (SEE). You can download form CF10 (link opens in a new window PDF file size 56kb) in order to claim the exception.

  To see how the Small Earnings Exception works you can have a look at the example of Lars below:

  Example

  Lars is a self-employed ice cream seller. Business has been poor for a couple of years and Lars thinks that his profits for 2011/2012 will be around £4,500. In December 2010, Lars applied for Small Earnings Exception to apply for 2011/12. The claim was accepted so he has not needed to pay any contributions during 2011/12.

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How do I pay national insurance contributions?

• Class 1 (employees): Paid through your earnings. It is taken out of your gross wages by your employer who just pays you the net amount.
• Class 2 (self-employed only): Paid normally by quarterly bill or monthly by Direct Debit.
• Class 3 (voluntary): Paid normally by quarterly bill or monthly by Direct Debit or by making an annual lump sum payment.
• Class 4 (self employed only on profits): Paid with the income tax on your profits through self assessment.

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What benefits do my national insurance contributions (NIC) pay for?

For some UK benefits, you need to have paid national insurance contributions (NIC). These are called contributory benefits. There are other benefits where provided the rules for claiming apply to you, it does not matter whether or not you have paid any NI contributions. 

Benefits which depend on NIC include:

• Maternity Allowance
• Contribution-based Jobseeker's Allowance
• Contribution-based Employment and Support Allowance
• Widow's Benefits
• Basic State Pension

Benefits which do not depend on NIC include:

• Attendance Allowance and Disability Living Allowance
• Child Benefit
• Guardian's Allowance
• Income-based Jobseeker's Allowance (JSA)
• Industrial Injuries Benefits          
• Carer's Allowance
• Severe Disablement Allowance
• Statutory payments (e.g. Statutory Sick Pay) .

Use the following table to see which type of contribution counts towards which benefit:

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Frequently asked questions

What if I have more than one job?

Unless you are a director of a company, each employment you have is looked at separately and each has the weekly £110 lower limit. 

If, in the 2010/11 tax year you have two jobs, and expect to pay Class 1 NICs on earnings of at least £844, throughout the whole tax year in one of these jobs, you can ask to defer payment in the other job. You do this on form CA72A (link opens in a new window PDF file size 82kb).

If you need them there are CA72A guidance notes you can download from the HMRC website (link opens in a new window).

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I am employed and self-employed. Do I need to pay national insurance contributions on both my jobs?

If you are both employed and self-employed, you need to pay both Class 1 NIC on your employed income and Class 2/4 NIC on your self-employed income. 

However you may defer your Class 2 NICs if you are likely to pay Class 1 NICs on earnings of at least £844 each week for the whole tax year. 

You may defer some of your Class 4 NICs if you can show that you are likely to pay too much in Class 1, Class 2 and Class 4 NICs. Form CA72B (link opens in a new window PDF file size 62kb) can be used to claim deferral for the current year. You can also download CA72B guidance notes on how to fill in the form (link opens in a new window) from the HMRC website.

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Acknowledgement

This information has been reproduced with the kind permission of the Low Incomes Tax Reform Group (link opens in a new window), which is an initiative of the Chartered Institute of Taxation to give a tax voice to the unrepresented.

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Last updated: 25 November 2011