A Guide to National Insurance
18/01/2021
Wondering about national insurance? You’ve come to the right place. This guide provides an overview to what it is, how much employees and employers contribute, and more.
What is National Insurance?
You pay National Insurance contributions to qualify for certain benefits and the State Pension.
You pay mandatory National Insurance if you’re 16 or over and are either:
- an employee earning above £183 a week
- self-employed and making a profit of £6,475 or more a year
You may be able to pay voluntary contributions to avoid gaps in your NI contributions.
You need a National Insurance number before you can start paying National Insurance contributions.
If you earn between £120 and £183 a week, your contributions are treated as having been paid to protect your National Insurance record.
National Insurance Classes
There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status and how much you earn.
|
|
Class 1: employees |
Class 2: self-employed |
Class 3: voluntary contributions |
|
Basic State Pension |
Yes |
Yes |
Yes |
|
Additional State Pension |
Yes |
No |
No |
|
New State Pension |
Yes |
Yes |
Yes |
|
Contribution-based Jobseeker’s Allowance |
Yes |
No |
No |
|
Contribution-based Employment and Support Allowance |
Yes |
Yes |
No |
|
Maternity Allowance |
Yes |
Yes |
No |
|
Bereavement Support Payment |
Yes |
Yes |
No |
Class 4 contributions paid by self-employed people with a profit of £9,501 or more do not usually count towards state benefits.
When Do You Stop Paying?
If you’re employed, you stop paying Class 1 National Insurance when you reach the State Pension age.
If you’re self-employed you stop paying:
- Class 2 National Insurance when you reach State Pension age
- Class 4 National Insurance from 6 April (start of the tax year) after you reach State Pension age
How Much Do I Pay?
This table shows how much employers deduct from employees’ pay for the 2020 to 2021 tax year.
|
Category letter |
£120 to £183 (£520 to £792 a month) |
£183.01 to £962 (£792.01 to £4,167 a month) |
Over £962 a week (£4,167 a month) |
|
A |
0% |
12% |
2% |
|
B |
0% |
5.85% |
2% |
|
C |
N/A |
N/A |
N/A |
|
H |
0% |
12% |
2% |
|
J |
0% |
2% |
2% |
|
M |
0% |
12% |
2% |
|
Z |
0% |
2% |
2% |
Example:
If you’re in category A and you earn £1,000 in a week you’ll pay:
- nothing on the first £183
- 12% (£93.48) on your earnings between £183.01 and £962
- 2% (£0.76) on the remaining earnings above £962
This means your National Insurance payment will be £94.24 for the week.
Employer National Insurance Rates
This table shows how much employers pay towards employees’ National Insurance for the 2020 to 2021 tax year.
|
Category letter |
£120 to £169 (£520 to £732 a month) |
£169.01 to £962 (732.01 to £4,167 a month) |
Over £962 a week (£4,167 a month) |
|
A |
0% |
13.8% |
13.8% |
|
B |
0% |
13.8% |
13.8% |
|
C |
0% |
13.8% |
13.8% |
|
H |
0% |
0% |
13.8% |
|
J |
0% |
13.8% |
13.8% |
|
M |
0% |
0% |
13.8% |
|
Z |
0% |
0% |
13.8% |
Class 1A and Class 1B rates
Employers pay Class 1A and 1B National Insurance on expenses and benefits they give to their employees. They must also pay Class 1A on some other lump sum payments, for example, redundancy payments.
The rate for the tax year 2020 to 2021 is 13.8%.
Category Letters
Employers use an employee’s National Insurance category letter when they run payroll to work out how much they both need to contribute.
Most employees have category letter A. Employees can find their category letter on their payslip.
|
Category letter |
Employee group |
|
A |
All employees apart from those in groups B, C, J, H, M and Z in this table
|
|
B |
Married women and widows entitled to pay reduced National Insurance
|
|
C |
Employees over the State Pension age
|
|
J |
Employees who can defer National Insurance because they’re already paying it in another job
|
|
H |
Apprentice under 25
|
|
M |
Employees under 21
|
|
Z |
Employees under 21 who can defer National Insurance because they’re already paying it in another job
|
Category Letter X
Employers use category letter X for employees who do not have to pay National Insurance, for example, because they’re under 16.
So, there’s your guide to National Insurance. Remember, the threshold amounts and bands shown in this guide are likely to change year after year.
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