Jane Dotson
National Insurance is a tax on earnings paid by most UK workers. It is paid by employees, the self-employed, and employers on the earnings of those they employ. National Insurance contributions (NICs) go into a government fund called the National Insurance Fund (NIF), which is used to pay for state benefits such as the state pension, statutory sick pay, and maternity leave. To qualify for certain benefits, such as the state pension, individuals need to have paid National Insurance contributions for a set period.
| Characteristics | Values |
|---|---|
| Who pays National Insurance | Most UK workers |
| Who doesn't pay National Insurance | Those earning under £12,570 per year |
| Types of contributions | Class 1, Class 2, Class 3, Class 4 |
| Who pays Class 1 | Employees earning above a certain amount |
| Who pays Class 2 | Self-employed people with profits between £6,365 and £8,631.99 per year |
| Who pays Class 3 | Employees making voluntary contributions |
| Who pays Class 4 | Self-employed people with profits above £8,632 per year |
| What it's used for | State benefits, such as the state pension, statutory sick pay, and maternity leave |
| How much you pay | Depends on how much you earn |
| How you pay | Through the PAYE (Pay As You Earn) system, or via tax self-assessment for the self-employed |
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State pension
National Insurance contributions are crucial for claiming the state pension. The amount of state pension you will receive when you retire is determined by your National Insurance contributions (NICs). To be eligible for the state pension, you must have enough qualifying years on your National Insurance record. A 'qualifying year' is a year in which you have made sufficient NICs or received National Insurance credits. The number of qualifying years required depends on when you reach pension age and the type of state pension you are claiming.
If you are claiming the new state pension, which applies to those who reached or will reach state pension age on or after 6 April 2016, you typically need 35 qualifying years to receive the full amount. If you have fewer than 35 qualifying years, you will receive a reduced amount, and if you have less than 10 qualifying years, you will not receive any state pension.
On the other hand, if you are claiming the basic state pension, which is for those who reached state pension age before 6 April 2016, the number of qualifying years required may differ. It is important to note that if you have paid NICs at a contracted-out rate, your state pension may be less than the full amount.
You can increase your state pension entitlement by making voluntary contributions to fill gaps in your National Insurance record. Class 3 NICs are payable per week, and you can buy back any missing years from the past six years. Additionally, if you are self-employed, you can continue to pay Class 2 NICs to maintain your entitlement to certain state benefits.
It is worth noting that if you are a member of the Local Government Pension Scheme (LGPS), you may have been receiving a rebate on your National Insurance contributions and building up pension benefits within the LGPS instead of the additional state pension. However, from 6 April 2016, the new state pension replaced the existing basic and additional state pensions, and the rebate on LGPS members' National Insurance contributions ceased. As a result, LGPS members started paying a higher amount of National Insurance contributions.
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Statutory sick pay
National Insurance contributions are mandatory for employees aged 16 or over who earn a minimum of £242 per week. These contributions are automatically deducted from your salary and are used to determine your eligibility for certain benefits, such as the State Pension and Maternity Allowance.
Now, let's focus on statutory sick pay (SSP):
The weekly rate for SSP is £118.75 for up to 28 weeks. It is paid on the days you would normally work, known as 'qualifying days'. SSP is typically paid on your regular payday, with tax and National Insurance deductions. It's important to note that some employment types, such as agency workers, directors, and educational workers, may have different rules for SSP entitlement.
As an employer, you are responsible for keeping records of your employees' sickness absences. These records may be requested by HMRC in case of disputes over SSP payments. Additionally, you need to ensure that you are registered with HMRC to pay tax and National Insurance for your employees.
You can use the SSP calculator provided by the government to calculate the actual amount of SSP for your employees, especially if they work on a daily rate. It's worth mentioning that SSP may still need to be paid even if you stop trading, and employees cannot be forced to take annual leave when they are eligible for sick leave.
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Maternity leave
National Insurance contributions are mandatory for employees in the UK who are 16 or older and earn above a certain threshold. These contributions are used to fund certain state benefits and pensions.
National Insurance contributions also help fund maternity leave. In the UK, maternity leave can last for up to 52 weeks, with the first 39 weeks being paid. For the first six weeks, women on maternity leave receive 90% of their average weekly earnings. The following 33 weeks are paid at a rate of 90% of their average weekly earnings or £187.18 per week, whichever is lower. The remaining 13 weeks are unpaid.
During this period, women continue to receive National Insurance credits, which are important for their State Pension. If a woman's maternity pay is £242 or more per week, she will continue to pay National Insurance contributions, which will count toward her State Pension. If she earns between £125 and £242 per week, she will still build up National Insurance credits, but without having to pay contributions.
For self-employed women, Maternity Allowance can be claimed for up to 39 weeks. The amount received depends on the number of Class 2 National Insurance contributions made in the 66 weeks before the baby is due. If no contributions have been made, the allowance is £27 per week. This can be topped up by making additional contributions, which will be backdated to increase the allowance.
During maternity leave, employers should continue to pay pension contributions, although salary sacrifice arrangements may need to be stopped to comply with minimum wage requirements. Women can decide whether to continue contributing to their pension scheme during this period.
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NHS funding
National Insurance contributions (NICs) are a tax on earnings and self-employed profits. They are paid by employees, employers, and the self-employed. If you are an employee, your National Insurance contributions are automatically paid from your salary through the Pay As You Earn (PAYE) system. If you are self-employed, you pay Class 2 and/or Class 4 National Insurance, depending on your trading profits.
NICs are used to fund various public services, including the National Health Service (NHS). The NHS in England is funded primarily through general taxation and NICs. In 2017/18, around £110 billion was spent on the NHS England budget, with a total cost of £125 billion, including hospitals, public health initiatives, education, training, and IT. Of this, about 80% was funded by general taxation, and National Insurance contributions covered most of the remaining 20%, amounting to just under £24 billion.
The level of NHS funding each year is determined by the central government through the Spending Review process and annual Budgets. The government estimates the expected National Insurance contributions and income from other sources such as patient charges. If these sources fall short of the funding target, the difference is topped up from general taxation.
In addition to funding the NHS, NICs also determine an individual's eligibility for certain benefits, such as the State Pension and Maternity Allowance. To receive the full new State Pension, one must have at least 35 qualifying years of National Insurance contributions or credits. Individuals who do not work may still be able to obtain National Insurance credits, for example, if they are a carer or claim benefits due to ill health or unemployment.
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Social security benefits
National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, with payment of NI contributions establishing entitlement to certain state benefits for workers and their families.
National Insurance is a tax paid by most UK workers. It is usually paid through a Pay As You Earn (PAYE) system, where your contributions are automatically deducted from your salary. If you are self-employed, you pay Class 2 and/or Class 4 National Insurance, depending on your trading profits.
Your National Insurance contributions (NICs) determine your eligibility for certain benefits, such as the State Pension, Maternity Allowance, Jobseeker's Allowance, and Employment and Support Allowance. To receive the full new State Pension, you need at least 35 qualifying years of contributions or credits. You will receive a reduced amount if you have fewer than 35 years, and you may not receive anything if you have less than 10 qualifying years.
If you do not work, you may still be able to receive National Insurance credits, for example, if you are a carer or claim benefits due to ill health or unemployment. These credits count towards your eligibility for benefits in the same way as contributions. You can also make voluntary contributions to fill any gaps in your record and preserve your entitlement to benefits.
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Frequently asked questions
National Insurance contributions (NICs) are a direct tax on earnings paid by employees, the self-employed, and employers.
National Insurance contributions go towards a government fund called the National Insurance Fund (NIF). Money in the NIF is used to pay for social security benefits, such as the state pension, statutory sick pay, and maternity leave.
To qualify for benefits such as the state pension, you need to have paid National Insurance contributions for a set period. The number of years of contributions required varies depending on the benefit. For example, you need 35 years of contributions to get the full state pension when you retire.
Your National Insurance rates depend on your employment status and your earnings. You can check your National Insurance number, rates, and classes online to ensure you are paying the correct amount.
Yes, it is possible to make voluntary National Insurance contributions to fill gaps in your record and preserve your entitlement to certain benefits.
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