Partner Sue Dowling, in our Employment Law team, answers the common questions that employers may have in relation to National Insurance Contributions (NIC).
What are National Insurance Contributions (NIC)?
In general terms NIC is a tax on earnings (employees) and on profits (self-employed). NIC is paid into a fund called the National Insurance Fund.
What is the National Insurance Fund?
It was introduced in 1911 to provide a fund for employees who lost their jobs or who were in need of medical treatment. Nowadays the money is used to pay for the NHS, to qualify for certain benefits and for the State Pension.
Who pays NIC?
Any employee aged over 16 who earns more than £184 per week (£797 per month). In addition their employer must also pay NIC. The self-employed also pay NIC but at a lower contribution rate.
Is NIC compulsory?
Yes (if you meet the criteria and most employees do). It is also possible to pay voluntary NIC in order to make up any gaps in a NIC record.
How is the amount of NIC determined?
It is based on a series of classes which take into account your employment status.
What are the various NIC classes?
They are set as follows:-
|
Class 1 |
Class 2 |
Class 3 |
Class 4 |
How much are Class 1 contributions?
Class 1 is made up of both employee and employer contributions.
How much do employees contribute?
This depends upon a category letter. These categories include people who may be over retirement age or who have more than one job. However most employees are category letter A.
How much are employee class 1 category A contributions?
They are based on the following contribution rates:-
|
£0 - £184 per week |
£0 |
|
£184 - £967 per week |
12% |
|
Over £967 per week |
2% |
How much does my employer contribute as NIC?
Again this depends upon the category letter of the employee.
How much are employer class 1 category A contributions?
They are as follows:-
|
£0 - £184 per week |
£0 |
|
£184 - £967 per week |
13.8% |
|
Over £967 per week |
13.8% |
What is “the stamp”?
It is NIC but refers to the days when companies would give employees stamped cards showing their NIC contribution history.
Where can I see how much NIC I have paid?
It should be on your payslip every month, together with a cumulative figure for the year. It is also on your annual P60 from your employer or on your P45 if you are changing jobs.
How does NIC relate to benefits?
Some benefits, e.g. contribution based Job Seekers Allowance, are based on your NIC contribution history over the previous two tax years. Other benefits, such as Maternity Allowance depend upon NIC contributions over a certain period of time.
What changes have the government recently announced in respect of NIC?
They have announced that NIC rates will rise by 1.25% in order to fund changes in social care.
When is this due to come into effect?
In April 2022.
How will this change NIC contributions?
Contribution rates for employees will rise with effect from April 2022. Rates for employers will remain the same. After April 2023 NIC rates will go back to their previous levels but the 1.25% will continue as a separate health and social care levy.
How do I get a National Insurance (NI) number?
You can find more information via gov.uk here.
How many years NIC contribution history do I need to get the State Pension?
In order to qualify for the new State Pension in full you will need 35 qualifying years.
Can you help me further?
Yes, our team of experienced employment lawyers would be pleased to advise you on your individual circumstances.
The information above is given from an employment, and not from an accountancy, perspective, and that whilst we can provide legal advice, we cannot provide accountancy advice.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
