If you’re an employer or self-employed adult in the UK, you’re likely paying National Insurance contributions. Since NI contributions are essentially a tax, it’s illegal not to pay them.
But, what happens if I don’t pay National Insurance in the UK, how is it calculated, and what are the benefits of having National Insurance?
Let’s dive in.
UK National insurance is a tax on your earnings or self-employed profits. These contributions are paid into a fund, which then pays for certain state benefits. For example, your State Pension is determined by your National Insurance records.
Anyone in the UK that’s older than 16 and has a job is required to make NI contributions, regardless of whether they’re employed, self-employed, or working part-time. If you’re not employed, there’s an option to top up your NI with voluntary contributions. Still, over 30% of freelancers with a side hustle confessed that they conceal their incomes.
If you’re employed, your employer pays or deducts a certain amount from your salary for your National Insurance. Depending on how often you receive your salary, your employers might be making monthly or weekly payments. If you’re self-employed, you should make every National Insurance payment when you pay your Income Tax.
The amount of NI contributions you’re required to make is calculated on gross earnings and your National Insurance category letter (which indicates which employee group you belong to).
UK NI rates also vary from year to year and are based on weekly and monthly income.
You don’t pay NI contributions once you reach State Pension age. You might also qualify for a National Insurance exemption if you earn less than the established threshold. In 2022/2023, UK residents who earn between £123 and £190 a week, will not be required to pay for National Insurance.
If you’re missing NI contributions payments, you’ll receive a Notice of Penalty Assessment from HM Revenue and Customs (HMRC), after which you’ll have 30 days to pay the penalty.
The HRMC will let you know what payment you have missed and how to pay it. You’ll also be given the option to appeal the decision. If you do miss a payment and fail to pay the penalty before the due date, the amount will increase by 5% after 6 months and another 5 % if the penalty remains unpaid after 12 months.
A National Insurance number is a unique number issued by the UK government to every person over 16 who lives and works in the UK, which allows the government to track their tax record and benefit entitlements.
Every NI number is made up of 2 letters, six numbers, and a final letter.
Most UK citizens receive their National Insurance number from the HMRC right before their 16th birthday. If the HMRC doesn’t send you a NI number, you’ll have to apply for one once you start working.
You can do that either online or by calling the Jobcentre Plus NI Allocation Service Helpline. You’ll first get a date for the evidence of identity interview where you’ll be given an application form to fill out and you’ll be asked to provide proof of identity.
You shouldn’t share your NI number with anyone else except with:
The National Insurance amount and type that people pay is based on:
There are four main classes of National Insurance:
|National Insurance Class||Who pays|
|Class 1||Employees and employers|
|Class 2||Self -employed|
|Class 3||Voluntary Contributions|
|Class 4||Self-employed with profits over a certain amount|
Employees who earn more than £190 per week make Class 1 employee NIC payments.
|Your weekly earning||Class 1 NI rate|
|£190 – £967||13.25%|
Employers pay Class 1A and Class 1B employer NIC rates if their weekly profit is over £175.
|Your weekly profit||Class 1A/1B NI rate|
|£481 – £967||15.05%|
The national insurance threshold for Class 2 NI contribution rates is an annual income of £6,725 or more. These NIC rates for Class 2 are flat and require self-employed individuals to pay 3.15% a week.
If you’re self-employed and you earn between £9880 – £50,270 for the entire tax year, you’ll need to pay Class 4 NICs with NI rates of 10.25%.
UK residents pay Class 3 voluntary contributions when they’re unemployed to fill the gaps in their record. If you’re considering paying National Insurance when not working, you could pay a maximum amount of £15.85 every week.
Worth noting: Since April, the NI tax rates increased by 1.25% to help fund the NHS and cover social care costs in the aftermath of the pandemic. The increase applies to Class1 (employees), Class 4(self-employed), and secondary Class 1, 1A, and 1B (employers).
Your entitlement to certain UK benefits depends on whether you’ve paid NI Contributions (or in some cases, it may depend on your spouse or civil partner’s NIC record).
Benefits that depend on NIC include:
Your National Insurance Contributions give you access to some benefits including a retirement pension. Thus, if you’re not paying your National Insurance contributions you’ll end up with gaps in your NI record, and won’t be able to qualify for some benefits. On top of that, you’ll be penalised by the HMRC for missing your National Insurance payments.
The National Insurance Contributions are mandatory for every person in the UK over the age of 16 that makes a profit above the minimum threshold. Those that earn less can opt out of National Insurance.
You’ll start paying NICs if you earn more than £190 a week, or you’re self-employed and your profit is over £6,725 for the entire tax year.
The best options are paying through your online bank account, online or telephone banking, and CHAPS. You can also pay by BACS or by Direct Debit.
To qualify for a State Pension, you need a minimum of 10 years’ worth of National Insurance Contributions; although if you’ve never worked due to disability, you may still be eligible. Another exception to this rule is if you’re married or in a civil partnership. Even if you don’t have the minimum of NI contributions, you may still qualify for a State Pension based on your spouse or civil partner’s NIC record.
The NHS is supplemented by National insurance contributions, but the majority of its funding comes from the general tax.
If you’re only working part-time and not paying your full National Insurance Contributions, you’ll end up with gaps in your contributions record, which may affect the benefits you’re entitled to, such as State Pension.
Bojana is my name and writing is my game. I am a content writer from Bitola who is always interested in the latest research in almost all areas of life. I have a Bachelor’s degree in English literature and a perfectionist character, both of which help me find the most accurate data and information available. Although I have my head stuck in studies and reports most of the time, I still have a bit of free time during which I enjoy knitting and watching classic 90’s Disney movies.