What is National Insurance?
National Insurance is a type of tax where UK workers (whether employed or self-employed) pay into a ‘pot’ which then entitles them to claim certain state benefits such as:
- Unemployment benefits
- Statutory sick pay
- Maternity pay
- State pension
- NHS
In most cases you’ll start paying national insurance once:
- your employment earnings are above £166 a week
- your self-employment profits are more than £6,365 a year
It is also referred to as ‘NI’ (national insurance) or Social Security and is payable by UK workers 16 and over. You stop paying it once you reach the State Pension Age.
The government track how much national insurance you have contributed by your national insurance number.
National Insurance Classes
There are four different types of NI classes. The class you belong to depends on your personal status.
| Class | Who Pays |
|---|---|
| 1 | Employees earning more than £166 a week and under State Pension age (automatically deducted through payroll) |
| 1a | Employers pay these on employee’s expenses or benefits |
| 2 | Self-employed people earning business profits of more than £6,365 a tax year (but you can choose to pay voluntary contributions) |
| 3 | Voluntary contributions to fill or avoid gaps in your National Insurance record |
| 4 | Self-employed people earning business profits over £8,632 a year |
National Insurance Contributions (NICs) are deducted by your employer each time you are paid. Or, if you are self-employed, once a year when you submit your self-assessment tax return.
You may pay more than one class depending on how you earn your money and from which sources.
National Insurance Categories
Your national insurance category indicates your personal status and shows how much you should be contributing.
Most people are given category ‘A’ but there are others.
| Category Letter | |
|---|---|
| A | Standard category and default for anyone who doesn't fit in another letter |
| B | Married women and widows entitled to pay reduced NI |
| C | Employees over the state pension age |
| J | Employees who defer NI contributions because they already pay the maximum in another job |
| H | Apprentices under 25 |
| M | Employees under 21 |
| Z | Employees under 21 who can defer National Insurance because they’re already paying it in another job |
| X | Under 16s who do not have to pay NI |
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
