You’ve probably heard about National Insurance (NI) and you might even pay it but do you know what it is?
There is a National Insurance number assigned to everyone from 16 years old which you might be asked to provide in certain circumstances.
To help you better understand the term, here’s everything we know about National Insurance from what it is to who must pay it.
What is National Insurance?
National Insurance contributions are paid to “qualify for certain benefits and the State Pension”, according to the Government website.
Why do you need a National Insurance number?
A National Insurance number makes sure your contributions and tax are only recorded against your name.
Once you have an NI number, it will never change. It will consist of two letters, six numbers and a final letter - for example: QQ123456B.
HM Revenue and Customs (HMRC) will send out a letter containing your National Insurance number a short time before your 16th birthday. It will deliver the letter to the address it has for you.
Who has to pay National Insurance?
Any person aged 16 or over who is either an employee earning more than £242 per week from one job or self-employed and making a profit of more than £12,570 per year has to pay National Insurance contributions.
If you’re an employee earning from £123 to £242 per week from one job or you’re self-employed and your profits are £6,725 per year, you usually don’t pay NI but you could still qualify for certain benefits and the State Pension.
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The Government website adds: “There are different types of National Insurance (known as ‘classes’).
“The type you pay depends on your employment status and how much you earn.”
How much National Insurance do you have to pay?
If you’re employed, you will pay Class 1 National Insurance contributions and these can change annually – you can see past rates via the Government website.
Most people who are paying Class 1 contributions for the 2024 to 2025 tax year will pay 8% if they earn £242 to £967 a week (£1,048 to £4,189 a month) from April 6, 2024 to April 5, 2025.
However, those who earn more than £967 per week (£4,189 a month) will pay 2% over the same time period.
If you are a married woman or a widow with a valid ‘certificate of election’ or you are deferring NI because you have more than one job, you will pay less.
How to pay National Insurance contributions
The government website explains: “You pay National Insurance with your tax. Your employer will take it from your wages before you get paid. Your payslip will show your contributions.
“If you’re a director of a limited company, you may also be your own employee and pay Class 1 National Insurance through your PAYE payroll.”
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If you’re self-employed, it added: “You pay Class 4 National Insurance, depending on your profits. Most people pay through Self Assessment.
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“If your profits are £6,725 or more, your Class 2 contributions are treated as having been paid to protect your National Insurance record.”
When do you stop paying National Insurance?
Employed people will stop paying Class 1 NI when they reach the State Pension age.
Those who are self-employed stop paying Class 4 NI from April 6 (the start of the tax year) after they reach State Pension age.
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