National insurance contributions

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There are six different classes of national insurance contributions, but two of them are only paid by employers. The class you pay depends on whether you are an employee, self-employed or you are paying contributions voluntarily to make up gaps in your contribution record. There are also contributions which employers have to make in respect of each employee.

Class 1 contributions

You have to pay Class 1 national insurance if:

* you are an employee under state pension age, and
* you earn more than a certain amount each week. This is known as the primary threshold.

For more information about state pension age, see Benefits for people over sixty.

Your employer also pays Class 1 contributions for each employee. Your employer deducts Class 1 contributions from your wages. Each time you are paid, your employer should give you an itemised pay statement showing the deductions which they have made from your wages. Your employer must make these deductions and pay them to HM Revenue and Customs together with:

* the contributions they have to make on your behalf
* your income tax.

It is against the law if your employer does not do this.

Once you reach state pension age, you can ask for a certificate of age exemption from the HMRC (National Insurance contributions) office to your employer so that they stop deducting your contributions. However, your employer will still have to pay employer’s contributions in respect of you while you are working.

Class 1 national insurance contributions are a percentage of your wages, over the primary threshold. Different percentages apply depending on how much you earn.

If you earn less than the primary threshold , you do not pay any national insurance. You will have national insurance contributions added to your record as long as you earn at least as much as the lower earnings limit.

The level of Class 1 contributions you pay as an employee depends on whether you are contributing to the Second State pension scheme (contracted-in), or your employer has their own pension scheme (contracted-out). If you are in a personal pension scheme, you pay contracted-in contributions, but HMRC will also pay into your pension scheme.

If you want to check the lower earnings limit, the primary threshold, the upper earnings limit and the percentage of your wages that is deducted for national insurance, you can look at the HMRC website (New window) or you can consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on (New window) nearest CAB.

Class 1A contributions

Class 1A contributions are paid by your employer if you get certain benefits with your job - for example, a company car. Class 1A contributions only have to be paid if you are a company director or the benefits you get with your job are worth more than a certain amount each year.

Class 1B contributions

Class 1B contributions are paid by your employer if they have to enter into PAYE settlement agreements with HMRC for the payment of tax.

Class 2 contributions

You pay Class 2 contributions if you are self-employed. If your earnings are below a certain limit (called the small earnings exception limit), you do not have to pay contributions, but you must apply to the HMRC in order to qualify for the exception. You can choose to pay NI contributions voluntarily even if your earnings are below the limit, so that your contribution record does not have gaps in it. Depending on the level of your profits, you may also have to pay Class 4 contributions (see under Class 4 contributions).

If you want to check the rate of Class 2 national insurance contributions or the small earnings exception limit, you can look on HM Revenue and Customs website at (New window). You must contact HMRC if you become self-employed so that you can set up payment of Class 2 contributions. You should contact HMRC within three months of becoming self-employed. You usually pay contributions by direct debit every month, or through a bank or post office. If you are liable to pay them and do not do so, HMRC can take legal action to recover unpaid contributions.

Reduced contributions for married women and widows

Some married women and widows have the right to pay reduced contributions. You will only have this right if you applied on an official form before 21 May 1977. No one can take up this right now.

If you chose to pay reduced contributions, you pay a lower rate of Class 1 national insurance and, if you're self-employed, you don't have to pay Class 2 contributions. However, it means you can't get contributory benefits and you may get less state Retirement Pension when you retire. Your local Jobcentre Plus office or HMRC (NI contributions office) can give you advice about how paying reduced contributions affects your state Retirement Pension.

You can choose to start paying contributions at the standard rate by getting in touch with your local Jobcentre Plus office or HMRC (NI contributions) office. Some women on low earnings who give up the reduced rate can be treated as paying full rate contributions without paying anything. You will need to fill in a form if you decide to give up your right to reduced contributions.

If you are a woman and you think you have the right to pay reduced contributions and want to change this, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on (New window) nearest CAB.

Class 3 (voluntary) contribution

Class 3 national insurance contributions are mainly voluntary contributions which you can choose to pay if you do not have to pay any compulsory contributions - for example, if your earnings are low. Credits for parents and carers are also Class 3 contributions. You can choose to pay Class 3 contributions to help fill gaps in your national insurance contribution record. HMRC may get in touch with you to suggest you do this, but if you think there may be gaps in your record, you can also get in touch with them. It is particularly important if you think it is going to affect the amount of your state Retirement Pension.

You should bear in mind that the number of years you need to have paid contributions in order to qualify for a basic State Retirement Pension is reduced to 30 years if you are a man or woman due to reach retirement age on or after 6 April 2010.

If you want to check the rate of Class 3 national insurance contributions, you can look on HM Revenue and Customs website at (New window) or contact your nearest HMRC (NI contributions) office.

If you want advice on whether it would benefit you to pay Class 3 contributions, you should consult an experienced adviser, for example, at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on (New window) nearest CAB.

Class 4 contributions

You may have to pay Class 4 contributions if you are self-employed and your profits are over a certain amount each year. You normally pay these with income tax.

If you want to check the rate of Class 4 contributions and the level of profit on which you have to pay them, you can look at the website (New window) or consult an experienced adviser, for example at a Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on (New window) nearest CAB.



What happens when you are not paying contributions

For most people, there will be periods of their working life when they are not paying contributions because they are not working. Without help this would mean you would have gaps in your national insurance record and this could prevent you getting benefits. In particular, it could affect your State Pension. The national insurance scheme recognises many of these situations and allows you to qualify for credits including credits for parents and carers if you are looking after a child or disabled person.




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