National Insurance or NI is the system where a person pays in money in order to receive certain benefits if they qualify for them. One that we all eventually receive is the state pension while others could be unemployment payments or payments when you are on a low income and have children.
Everyone over the age of 16 who earns more than £155 a week is liable to pay NI.
How much you pay
National insurance is split into two sections – the part an employee pays and the part that their employer pays. When you are self-employed, you have to pay both sections. Class 1 is the rate that is paid by an employed person earning more than £155 per week and is made up from the amount they pay and the amount their employer pays. A letter will designate how much this is.
An example would be someone who is a category A. They would pay nothing for the first £155 per week that they earn and would pay 12% of any payment between £155 and £827 per week. If they earn more than £827 a week (£3583 per month) they would pay a further 2% on this extra amount.
For that same person, the employer would pay nothing for the first £156 per week then 13.8% for payments between £156 and £827 a week and the same amount again for payments over £827 per week.
So how are we allocated a letter that defines what we should pay? The system is worked out on a number of details. For example:
- Category B – married women and widows who pay a reduced NI
- Category C – employees who are over the state pension age
- Category J – employees who don’t pay it because they are paying through another job
- Category H – Apprentices under 25
- Category M – Employees under 21
- Category Z – Employees under 21 who are paying through another job
Everyone else is a category A and would come under the above example as to what they would need to pay apart from those who are classed as Category X and are under the age of 16, so therefore do not need to pay national insurance.
National Insurance rates for the self-employed
If you are self-employed, you pay two types of national insurance, depending on your income. These are classed as Class 2 and Class 4 payments. You pay Class 2 payments on profits over £5965 each year and you pay Class 4 payments on profits over £8060 a year.
The amount you pay for Class 2 is worked out as a flat rate of £2.80 per week. Class 4, however, is worked out based on your profits. If you earn between £8060 and £43,000 you will pay 9% NI while if you earn over £43,000 you will pay a further 2% on your earnings. Both classes of NI are paid through the Self-Assessment system.
There are a few jobs that aren’t required to pay NI but agree to pay on a voluntary basis. These include people who run businesses involving property or land, those who make investments for themselves or others without a commission or fee and those who work as examiners, moderators or set exam questions. Also exempt are minister of religion who don’t receive a salary or stipend.
There are calculators available online that will help you work out how much NI and tax you will be required to pay on your earnings. National insurance payments will be due at the same time as tax revenues for that period.