National Insurance
What is it?
National Insurance (NI) is a tax that's intended to fund social benefits, primarily the state pension and unemployment benefit ('jobseeker's allowance'). Your entitlement
to such benefits is usually dependent on your history of NI contributions.
If you're an employee it's deducted via PAYE while the self-employed pay a weekly contribution and a profits-based contribution alongside income tax.
Prior to PAYE, it was necessary to purchase a NI certificate or 'stamp', hence some people referring to NI as 'paying their stamp'.
Who pays NI?
Anyone working in the UK aged between 16 and state pension age. If you're a foreigner working in the UK and paying NI in another European Economic Area (EEA) country you may be exempt provided you can produce a certificate confirming your ongoing contributions in that country.
Those living in the UK receive a NI Number of their 16th birthday, this number is used to track their NI contributions over their working life.
How much do I pay?
This depends on how much you earn and which class(es) of NI you have to pay:
Class 1Class 2Class 3Class 4
Paid by both employees and their employer on earnings over a weekly 'primary threshold' of £242. The NI rate for employees reduces on
earnings above an 'upper earnings limit' of £967.
On earnings between a weekly 'lower earnings limit' of £123 and the primary threshold, no NI contributions are paid, but are credited
by the Government as if they were, helping those on low incomes.
These count towards the State Pension, contribution-based Jobseeker’s Allowance, Incapacity Benefit, Bereavement Benefits and Maternity Allowance.
Paid by the self-employed at a flat rate of £3.45 per week. Those with annual earnings below £12,570 can apply for a 'small earnings exception'.
These count towards the same benefits as Class 1, but do not usually count towards contribution-based Jobseeker’s Allowance.
Voluntary contributions paid by those with gaps in their contribution history (usually through not working or earnings being too low). You might do this to preserve an entitlement to a state pension.
These count towards Bereavement Benefits and the State Pension.
Paid by the self-employed on their annual profits over a 'lower profits limit' of £12,570. The NI rate reduces on profits above an 'upper profits limit' of £50,270.
Count towards no benefits.
Current UK National Insurance bands and rates are:
| National Insurance Class |
Band |
Rate |
| Class 1 (employee) |
£242 - £967 per week |
12.00% |
| Class 1 (employee) |
over £967 per week |
2.00% |
| Class 1 (employer) |
over £242 per week |
13.80% |
| Class 2 |
over £12,570 |
£3.45 per week |
| Class 3 |
n/a |
£17.45 per week |
| Class 4 |
£12,570 - £50,270 |
9.00% |
| Class 4 |
over £50,270 |
2.00% |
What if I can't work?
If you're unemployed, incapable of working, on an approved training course or receiving a maternity or carers allowance, you might be eligible for Class 1 credits.
These maintain your state pension record and may maintain your entitlement to other benefits such as incapacity benefit.
You can get automatic NI credits for up to five full tax years from the tax year in which you reach age 60, provided you are not paying any NI contributions and are:
- a man between the age of 60 to 65
- a woman born after 5 April 1950 and aged between 60 and 65
Entitlement to benefits
State PensionJobseeker’s AllowanceEmployment & Support AllowanceBereavement
You need 30 qualifying years of NI contributions to receive a full basic State Pension.
If you don't build up sufficient qualifying years you could consider making Class 3 contributions to 'catch up'. Provided you have at least 10 qualifying years of
you should be eligible for the minimum basic State Pension (25% of the full pension).
The full basic State Pension is currently £203.85 per week.
Entitlement depends on your Class 1 NI contributions over the last two complete tax years prior to the benefit year (runs from 1st Sunday in Jan) in which you make
a claim.
The contribution-based Jobseeker's Allowance is currently £57.90 per week for under 25's and
£73.10 for over 25's.
You can read more details on the DirectGov website
You must have actually paid Class 1 or 2 contributions in one of the last three tax years before your claim. You must also have paid contributions, or received NI
credits, in the last two tax years before claiming. In some circumstances these criteria may be relaxed, so it's worth discussing with the Department for Work & Pensions
(DWP) if necessary.
The Employment & Support Allowance can get rather complicated, but in simple terms you could receive a basic payment of £73.10 per
week, or £57.90 per week if under 25, for 13 weeks while your ability to work is assessed. After this you might receive more but there's a number of scenarios where it could be different.
You can read more details on the Departnent for Work & Pensions website
If your husband, wife or civil partner dies and had actually paid, in any one tax year, Class 1, 2 or 3 contributions you could receive a bereavement payment.
The bereavement payment is currently a single payment of £2,000.
If the deceased had also paid, or been credited with, NI contributions for most of their working life you may also receive a bereavement allowance.
The bereavement allowance is currently up to £112.55 per week.
National Insurance Jargon
Here's some of the more common national insurance jargon you might come across:
| Class 1 | Compulsory National Insurance contributions paid by employees and employers. |
| Class 2 | Complusory National Insurance contributions paid by the self-employed at a flat weekly rate. |
| Class 3 | Voluntary National Insurance contributions paid by those with gaps in their contribution history. |
| Class 4 | Compulsory National Insurance contributions paid by the sef-employed on their profits. |
| National Insurance | A type of tax that is intended to fund social benefits, primarily the state pension and unemployment benefit. |
| Paying Stamp | A phrase used by some people that refers to paying National Insurance (prior to PAYE it was necessary to purchase 'stamps'). |