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National Insurance - Your Way Around the Maze

All rates in this article are for 2021/22.

NIC for Employees

For employees Class1 National Insurance (NI) primary contributions are deducted from their salary each month as part of the PAYE system.

They are paid on earnings between £184 and £967 per week at 12% and then 2% on any earnings above this(2021/22 rates).

NICs for Employers

Class 1 secondary contributions are paid by the employer at the rate of 13.8% on all the employee's income above £170 per week(2021/22 rates). The contributions must be paid over to HMRC together with the primary contributions deducted from the employees' salaries, each by the 19th of each month or by 22nd if paying electronically. Employers with small payrolls can elect to pay quarterly.

Class 1A contributions are paid by the employer on most forms of benefits provided to the employee, at the rate of 13.8% on the value of the benefit provided. Class 1A contributions are paid once a year by 6 July after the tax year end.

Employment Allowance

The Employment Allowance (EA) is available to most businesses and charities to offset against the cost of Employer's class 1 national insurance contributions. This applies to all businesses and employees not just new employees or new businesses.

For 2021/22 the allowance is £4,000 per year, per employer. From 2020/21, the EA is restricted to employers whose employer’s NIC liability was below £100,000 in the previous tax year.

Self Employment NIC

When you become self-employed there are two types of national insurance that are payable...

1. Class 2 contributions, amount to £3.05 per week and are due if you earn more than £6,515 per year(2021/22 rates). Payment is due on 31 Jan, the same as the self assessment tax bill. They provide only very basic cover for state benefits. You get the basic retirement pension but not the earnings related pension. You may also claim incapacity benefits but not industrial injuries benefit.
2. Class 4 contributions on the taxable profit you make between £9,568 and £50,270 per annum. The rate is 9% of that profit and 2% above this(2021/22 rates).

The good news is that this is less than you would pay as an employee where the rate is usually 12% at these levels and 2% after that.

Voluntary National Insurance

Class 3 National Insurance is a voluntary contribution at the flat-rate contributions of £15.40 per week(2021/22 rates) and can be paid by people to keep up their national insurance record for the retirement pension and some other benefits, when they haven't paid enough of any of the other forms of contribution.

Class 2 contributions can also be paid voluntarily to protect entitlement to UK benefits while temporarily posted abroad.

Summary

• Class 1 primary contributions are paid by employees;
• Class 1 secondary contributions are paid by employers
• Class 1A is paid by employers;
• Class 2 is paid by the self-employed, and voluntarily by employees posted overseas;
• Class 3 is a voluntary contribution to make up any deficits;
• Class 4 is paid by the self-employed if they earn enough, but does not provide any entitlement to state benefits.

National Insurance increase from April 2022

From 6 April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25%. This will be spent on the NHS and social care in the UK.

The increase will apply to:

• Class 1 (paid by employees)
• Class 4 (paid by self-employed)
• secondary Class 1, 1A and 1B (paid by employers)
• The increase will not apply if you are over the State Pension age.

How We Can Help You

National Insurance can be a complex area and HM Revenue Customs have wide powers. We can assist you with compliance and taking advantage of NIC planning opportunities.