What is National Insurance?
National Insurance contributions (NIC) help to pay for some state benefits including retirement pensions. NIC that you pay can earn you the right to receive certain benefits. In this section, we explain how NIC works and how to work out what you will pay. If you want information on how to get a National Insurance number (NINO) or what to do if you have lost or forgotten your NINO, visit our National Insurance number page.
Do I have to pay National Insurance contributions?
You pay NIC if you are either employed or self-employed and aged 16 or over but below state pension age. The amount of NIC you pay depends on how much you earn.
The way in which you work will affect the type of NIC you pay. Employees and other workers (for example, people working for agencies) pay different types of NIC to the self-employed (that is, working for yourself).
You stop paying NIC when you reach state pension age, even if you continue to work. The exception is Class 4 NIC for the self-employed, which you pay until the start of the tax year after the one in which you reach state pension age.
You pay NIC on earnings, that is employment income and profits from self-employment, but you do not pay NIC on pension income.
You can find out when you will reach state pension age by using the calculator on the GOV.UK website.
What are National Insurance credits?
In certain circumstances, you may be given National Insurance credits, even though you are not working. These count towards some entitlements, like the state pension.
You must be aged 16 or over and below state pension age.
There are many different circumstances in which you might be eligible to receive National Insurance credits, including being unable to work due to illness, or caring for someone.
There are two types of National Insurance credits: Class 1 credits and Class 3 credits. The type of credits you might get depends on your individual circumstances. You have to meet certain conditions to receive National Insurance credits.
In some circumstances, you should be given National Insurance credits automatically, for example, if you get employment and support allowance or carer’s allowance. In other circumstances, you have to make a claim.
There is more information on the different situations in which you might be able to get National Insurance credits and how to get National Insurance credits on the GOV.UK website.
What benefits do my contributions pay for?
To qualify for some UK state benefits, you need to have paid NIC of a certain level. These state benefits 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 or enough NIC.
Benefits which do not depend on NIC include:
- attendance allowance and disability living allowance
- personal independence payments
- child benefit
- guardian's allowance
- income-related employment and support allowance
- income-based jobseeker's allowance
- industrial injuries benefits
- carer's allowance
- severe disablement allowance
- statutory payments, for example, statutory sick pay
- working tax credit and child tax credit
- war widow's or widower's pension
- pension credit
- universal credit
Use the following table to see which type of contribution counts towards which benefit:
|Benefit||Class 1||Class 2||Class 3|
|Contribution-based jobseeker's allowance||Yes||No||No|
|Contribution-based employment and support allowance||Yes||Yes||No|
|Widowed parent's allowance||Yes||Yes||Yes|
|Basic state pension||Yes||Yes||Yes|
|New flat-rate state pension||Yes||Yes||Yes|
Note that there are exceptions to the above for share fishermen and volunteer development workers employed abroad.
What are Class 1 National Insurance contributions?
You pay Class 1 NIC if you work for an employer, that is, you are an employee. Your employer takes the NIC off your wages before paying you. Your employer also has to pay NIC based on your earnings, but you need not worry about these.
There is detailed information about Class 1 NIC in the ‘employed’ section, including examples.
You pay Class 2 NIC if you are self-employed. There is more information in our 'self-employed section'.
The amount you pay is the same no matter what level your profits are.
HMRC collect Class 2 NIC through the self assessment system. This means that you do not have to pay contributions during the tax year. Your liability will arise at the end of the tax year and you can pay it with your self assessment tax bill.
What is the Small Profits Threshold?
If you are self-employed and your profits are less than a set limit – the Small Profits Threshold – you will not have any liability to Class 2 NIC.
You will however have the option to pay Class 2 NIC voluntarily.
There is more information in the 'self-employment section'.
What are Class 3 National Insurance contributions?
If you do not pay either Class 1 NIC or Class 2 NIC and you do not receive National Insurance credits, but you want to protect your rights to some state benefits, you can pay Class 3 NIC. These are also known as voluntary contributions.
For 2016/17 the rate of Class 3 NIC is £14.10 a week.
You can see how voluntary contributions work in the example Roger.
You can pay Class 3 NIC for the current year by monthly Direct Debit or by quarterly payment request. You can pay contributions for previous years in a lump sum.
There is more information on Class 3 NIC and how to pay on the GOV.UK website.
What are Class 4 National Insurance contributions?
You pay Class 4 NIC if you are self-employed. You pay them in addition to Class 2 NIC, but Class 4 NIC do not count towards any state benefits.
You are only liable to pay Class 4 NIC if your profits are over a certain level, the lower profits limit.
There is more information in our 'self-employment section'.
You pay Class 4 NIC together with any income tax payable through self assessment.
How do I pay National Insurance contributions?
How do I pay Class 1 NIC?
You pay Class 1 NIC through your earnings under the PAYE system. Your employer deducts Class 1 NIC from your gross wages before deductions, together with any income tax due, and just pays you the net amount after deductions.
How do I pay Class 2 NIC?
You can pay Class 2 NIC together with the income tax due on your self-employment profits through self assessment. Alternatively, you can make payments regularly throughout the tax year.
How do I pay Class 3 NIC?
You can pay Class 3 NIC for the current year by quarterly bill or by monthly Direct Debit.
You can pay Class 3 NIC for previous years by making a lump sum payment.
There is more information on the methods of payment on the GOV.UK website.
How do I pay Class 4 NIC?
You pay Class 4 NIC together with the income tax due on your self-employment profits through self assessment. To find out more see 'How do I pay tax on self-employed income?'
How do I claim a refund of overpaid or incorrectly paid National Insurance contributions?
There is a limit to the amount of NIC you need to pay in a tax year (across all the Classes). If you have had only one employment you should not have overpaid NIC. If your total earned income is more than the weekly upper earnings limit multiplied by 53 (£827 x 53 = £43,831 in 2016/17) then it is possible that you may have overpaid NIC.
HMRC do not reconcile each individual’s NIC. This is because it is relatively uncommon for an individual to have paid the wrong amount of NIC.
You might find you have overpaid NIC in certain circumstances, for example:
- you carried on working after state pension age and your employer continued to deduct Class 1 NIC;
- you paid Class 4 NIC on profits from self-employment in respect of a tax year after the one in which you reached state pension age;
- you paid Class 2 NIC as a self-employed person when your earnings were below the Small Profits Threshold limit;
- you had two or more employment on which you paid Class 1 NIC;
- you were employed and self-employed at the same time and paid Class 1, Class 2 and Class 4 NIC.
If you overpay NIC or pay NIC incorrectly, you can claim a refund.
You cannot claim a refund of NIC simply because you stop work or do not work for the whole tax year.
You cannot claim a refund of NIC simply because you are leaving the UK to live in another country. For more information visit the 'migrants section' of this website.
There is a tool to help you apply for a refund of NIC on the GOV.UK website.
How do I check my National Insurance contributions record?
HM Revenue & Customs (HMRC) keep a record of the NIC individuals pay. It is possible for you to check your NIC record by:
logging into your personal tax account;
applying online, using the form on the GOV.UK website;
phoning HMRC’s National Insurance enquiries helpline – you can find the details on the GOV.UK website;
writing to HMRC (you can find an address on the GOV.UK website).
Roger has a job with the local bank. He earns £17,160 a year (£330 a week). Each week he pays Class 1 NIC of:
|£330-£155 = £175 @ 12%||21.00|
Roger's wife has stopped working, but to keep up her entitlement to a basic state pension (as she is not entitled to NI credits) she pays Class 3 NIC of £14.10 a week.
Where can I find more information about National Insurance contributions?
Where can I find more information on employment and National Insurance?
If you are an employee, you can find more information on NIC in the ‘employed section’ of this website. This includes information on what happens in the following situations:
- You have more than one employment.
- You are both employed and self-employed.
- You receive a low-interest or an interest-free loan from your employer.
- You are a part-time worker and you have been asked to work more hours.
- Your yearly income is less than the annual primary threshold, but you have paid Class 1 NIC.
- Salary sacrifice and Class 1 NIC.
Where can I find more information on self-employment and National Insurance?
If you are self-employed, you can find more information on NIC in the ‘self-employment section’ of this website. This includes information on what happens if you are both employed and self-employed, and the NIC implications of transferring your business into a company. It also looks at the issue of whether or not to pay Class 3 voluntary NIC.
Where can I find more information on pensioners and National Insurance?
If you have reached state pension age and continue working, you can find more information on NIC in the ‘pensioners section’ of this website.
Where can I find more information on migrants and National Insurance?
If you are a migrant, you can find more information on NIC in the ‘migrants and tax section’ of this website. This section looks at your NIC position depending on which country you have come from to the UK.
Where can I find more information on students and National Insurance?
If you are a student, you can find more information on NIC on our other website, ‘Tax Guide for Students’.
Where can I find more information on reduced rate Class 1 National Insurance?