National Insurance
National Insurance contributions (NIC) are essentially a tax on earned income. There are 2 sections of the NIC sector which divides income into different classes:
Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions.
National Insurance is often overlooked yet it is the largest source of government revenue after income tax.
Who pays National Insurance?
You pay National Insurance contributions if you’re an employee or self-employed and you’re aged 16 and over, as long as your earnings are more than a certain level. If you’re employed you stop paying National Insurance contributions as soon as you reach State Pension age. If you are self-employed, you stop paying Class 2 contributions as soon as you reach State Pension age and Class 4 contributions from the start of the tax year after the one in which you reach State Pension age.
State Pension age is 65 for men born before 6 April 1959 and 60 for women born before 6 April 1950. But it will gradually increase to 65 for women between 2010 and 2020.
Some people also pay voluntary National Insurance contributions. For example, you might choose to pay them if you:
- aren’t working and are not claiming state benefits
- haven’t paid enough National Insurance contributions in a year to count for the State Pension or other long term state benefits
- live abroad and want to maintain your state benefits entitlement
Your National Insurance number is your own personal account number. The number makes sure that the National Insurance contributions and tax you pay are properly recorded on your account. It also acts as a reference number for the whole social security system.
Every National Insurance number is different. It’s made up of letters and numbers like this:
NI 12 34 56 A.
(Please note that this National Insurance number is just an example and should not be used as your own number).
Your National Insurance number never changes even if you go abroad, marry, register as a civil partner, change your name, etc.
Your entitlement to state benefits depends on your National Insurance contribution record (see the section below ‘State benefits that depend on National Insurance contributions’).
If you don’t have a National Insurance number, you can apply to get one.
