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National insurance contributions (NIC)

Key information

National insurance is a tax on your earnings that goes into the National Insurance Fund which pays for various benefits. This section covers some basic information about NIC.

Applies to: England, Wales, Scotland and Northern Ireland.

Age Rules: You pay national insurance contributions (NIC) between the ages of 16 and state pension age on earnings but not pensions. After state pension age, even if you have a job you do not need to pay any more contributions. 

Which Agency: National Insurance Contributions Office of HM Revenue and Customs (HMRC)

 

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?

Your national Insurance (NI) 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 NI 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?

If you are looking for work, starting work or setting up as a self-employed person, you will need a national insurance number. If you have the right to work in the UK, you will need to telephone Jobcentre Plus on 0845 600 0643 to arrange to get one. Lines are open 8.00 am to 6.00 pm Monday to Friday and are normally less busy before 9.00 am. They may require you to attend an 'Evidence of identity' interview.

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

Once your application is successful, you will receive a letter confirming your NI number. 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 the Department for Work and Pensions (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 £153 per week (2014-2015 Tax Year primary threshold)

If your income falls below this, you will not need to pay any contributions. State benefit entitlement begins where your wage is over £111 per week (2014-2015 Tax Year lower earnings limit).

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

Example

Anya earns £186 a week from her job in a chemist's shop 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 £186 less the lower limit of £153 = £33 at 12%, that is £3.96 (Class 1 NIC). This will be taken from Anya's wages together with any income tax before she receives them.

 

Employers are also expected to pay Class 1 NICs (known as secondary contributions) at 13.8% on the earnings of each employee who earns more than the primary threshold. This contributes, among other things, towards the employee's entitlement to statutory payments.

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Self employed

If you are self employed, you pay two types of NICs.

If you are self employed and you think your profits will be less than a set limit - £5,885 for 2014-2015 - you can elect not to pay any flat rate Class 2 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) 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 2014/2015 will be around £4,500. In December 2013, Lars applied for Small Earnings Exception to apply for 2014/15. The claim was accepted so he has not needed to pay any contributions during 2014/15.

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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. The various options for paying Class 2 can be found on the HM Revenue and Customs website (link opens in a new window). There are proposals in the 2014 Finance Bill for it to be paid through self assessment along with Class 4 and income tax on profits.
  • 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 or been credited 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:

Benefits which do not depend on NIC include:

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

Benefits Class 1 Class 2 Class 3
Maternity Allowance Yes Yes No
Contribution-based Jobseeker's Allowance Yes No No
Incapacity Benefit Yes Yes No
Employment and Support Allowance Yes Yes No
Widow's Benefits Yes Yes Yes
Basic State Pension Yes Yes Yes
Additional State Pension Yes No No

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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 £153 lower limit.

If, in the 2014/15 tax year you have two jobs, and expect to pay Class 1 NICs on weekly earnings of at least £805, 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 'Application for deferment of payment of class 1 NICs' (link opens in a new window).

If you need them, there are Guidance notes for form CA72A that you can download from the HMRC website at the link above.

What happens if I am employed and self-employed?
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 £805 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 'Application for deferment of payment of class 2 and/or class4 NICs (link opens in a new window)' can be used to claim deferral for the current year. You can also download Guidance notes for CA72B from the HMRC website at the link above on how to fill in the form.

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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: 16 April 2014

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