National Insurance (NI) is a vital component of the UK welfare state. Its payment enables people to build up contributory entitlement to certain benefits, including the State Pension.
NI contributions are collected by HM Revenue and Customs via the PAYE system alongside Income Tax deductions. Self-employed people pay Class 2 NICs at a weekly flat rate and Class 4 NICs on their level of taxable profits.
National Insurance is a tax on earnings paid by both employers and employees to help fund benefits including state pensions, statutory sick pay, and maternity and paternity leave. It can also contribute towards the NHS and social care. Individuals pay NI either as part of their wages under the PAYE system, or self-assessment via their tax return. They may also pay voluntary contributions in order to fill gaps in their contribution history and protect their future entitlement to benefits such as the State Pension.
The amount of NI an employee pays depends on their class. Employees with a job paying above a certain threshold pay class 1 NI, which is usually worked out on a payment-by-payment basis (although if a person has multiple jobs they may be paid at different rates and thus have different class 1 NIC bands). Self-employed individuals pay two classes of NI, a flat weekly rate called class 2 and a percentage of their profits, which is called class 4. People who are unemployed can also make voluntary payments to top up their contributions record and potentially qualify for state benefits.
As a small business owner, it’s worth knowing the ins and outs of your NI to ensure you don’t accidentally pay too much or too little. This way, you can make sure that your staff are correctly paid and you’re not being hit with any unexpected bills. The good news is that you can make money management a whole lot easier with the right point of sale software.
How to get a NI number
Your National Insurance number is the key to making sure that the tax and NI you pay are properly recorded. It also acts as a reference for the whole NI system and you can use it to check other information about your tax, pensions or benefits. You’ll get a letter with your NI number soon after you apply, but you can also find it in your online Personal tax account or the HMRC app. You can also ask for a paper copy of your NI number from HMRC.
You usually get a National Insurance number sent to you in the post three months before your 16th birthday. If you’re a looked-after child you might get one through your social worker.
If you’re starting work, looking for work or self-employed you can apply for an NI number online. You’ll need to provide proof of identity so bring your passport, driving licence or other official documents with you when you apply.
You can also get a temporary reference number (TRN) when you don’t have an NI number or need to make a change to your existing NI record. This has the format 63T12345 and is valid for up to three years. The TRN is used to identify you in the PAYE system, in self-assessment tax returns and in applications for ISAs.
How to pay NI contributions
National Insurance contributions are paid by employees and self-employed individuals to fund a variety of social welfare programs. The contributions are used to fund the country’s pension system, unemployment benefits and sickness payments. Employees can pay through payroll deductions, or directly to HM Revenue and Customs (HMRC) through direct debit, cheque or online banking.
Self-employed people can make contributions through a tax-free personal allowance, and they are also allowed to choose their own rate of Class 2 and 3 National Insurance contributions. These are then credited to their NI account, which determines eligibility for certain benefits such as the State Pension.
The amount of State Pension that you get when you reach retirement depends on how many ‘qualifying years’ of NI contributions you have. Each tax year (6 April to 5 April) that you pay or are credited with NI contributions counts as a qualifying year.
You can find out how many qualifying years you have by requesting a State Pension statement from HMRC. It should show any gaps that you can make up by paying voluntary NICs, and it will also tell you how much you would need to pay. However, it can take some time for your State Pension statement to arrive. If you don’t receive one you should contact HMRC and ask for a replacement.
How to claim NI benefits
Millions of pounds in benefits go unclaimed each year – some people are put off by the process and others simply don’t realise what they’re owed. If you’re missing out, use our online benefit calculator to find out how much you could get.
To qualify for state pension, or other benefits, you must have paid – or been credited with – National Insurance contributions. Contributions are made by employees and employers on earnings and by the self-employed on profits above a certain threshold. People can also make voluntary NIC payments to plug gaps in their contribution record or to protect their future entitlement to benefits.
The NI system records everyone’s contribution history in an electronic database. You can view your NI record by going to the HMRC website and signing in with your National Insurance number. The NI number is usually two letters followed by six digits, or one letter and six digits (QQ123456C). You can find your NI number on payslips, salary statements, works pension statements, letters from HMRC about tax or tax credits, benefit payment confirmations and tax credit card receipts (as long as they show your NI number) and any other documents with your NI number written on them, including bank cards.
You can also check if you have any gaps in your NI record by looking at your credit balance on the HMRC online service. Credits are automatically added to your NI account when you pay Class 1 or Class 2 NICs through PAYE or a deduction from your wages, or when you get child benefits, carer’s allowance or bereavement benefits. אתר ביטוח לאומי