National Insurance

Question 1

What is National Insurance?

Answer 1

HMRC definition:
“you pay National Insurance contributions to build up your entitlement to certain state benefits, including the state pension. The contributions you pay depend on how much you earn and whether you’re employed or self-employed”

Question 2

Class 1

Answer 2

• Employees and Employers
• Employees pay between the ages of 16 and State Retirement Age
• Employers pay for all employees over 16 - no upper age limit
• Employee contributions are NOT tax deductible
• Employer contributions ARE tax deductible
• Employee contributions are NOT due on benefits in kind
• Employer contributions ARE due on benefits in kind

Question 3

Limits and Levels

Answer 3

• Lower earnings limit = benefit entitlement but no contributions
• Primary threshold = point at which employee starts paying
• Secondary threshold = point at which employer starts paying
• Upper earnings limit = point at which employee stops paying highest rate

Question 4

NI administration

Answer 4

• Employer pays monthly - due by 19th (22nd if electronic) of the month.
• Declared on RTI returns
• Class 1a paid by 19th July after tax year (22nd if electronically)
• more than one missed payment leads to penalty starting at 1%
• 6 months late payments incur 5% charge
• Further 5% if not paid within 12 months
• Class 1a penalties after 30 days, 6 months and 12 months

Question 5

NI Classes

Answer 5

Class 1 - Employees and Employers
Class 2 & 4 - Self-employed
Class 3 - Voluntary

Question 6

Classes 2 & 4

Answer 6

• gives entitlement to state benefits
• Flat rate where profits exceed £6,725 (2022/2023)
• Below this level can apply for exemption or pay voluntary
• £3.15 per week

Question 7

Class 4

Answer 7

• Earnings related on profits above £11,908
• Between £11,908 and £50,270 at 10.25%
• Above £50,270 at 3.25%
• If more than one self-employment, then earnings are added together to reach the £50,270 limit.

Question 8

Class 3 (Voluntary)

Answer 8

• To fill gaps in NI history
• up to 6 years after the year they relate
• rate payable is the rate in the year of payment
• Only applies to years where insufficient class 1 & 2 are paid
• Current rate is £15.85 per week (2022/2023)
• not payable for year in which payer reaches State Pension Age or any subsequent year