National Insurance explained How National Insurance works
Paying NI entitles you to certain benefits
National Insurance is a tax on earnings and self-employed profits. Paying it entitles you to certain state benefits, though these vary according to whether you're employed, self-employed or making voluntary contributions.
The amount you get depends on your contributions too. Full state pension is only paid to those who have an adequate contributions record.
Who pays National Insurance?
Most people who work pay National Insurance contributions (NICs). The type, or class, you pay depends on your employment status.
Employees and agency workers
Employees and most agency workers make Class 1 contributions, collected via PAYE, together with their income tax.
Self-employed
If you're self-employed, you normally pay Class 2 National Insurance contributions and usually Class 4 NICs as well. There are some special rules that treat self-employed people, such as supply teachers, as employees for NI purposes. This helps to protect their state benefit rights.
Class 3 contributions are those that you can pay voluntarily. See How much NI you pay for more details and 2013-14 rates.
Students
You don't start paying National Insurance until you’re over 16 years old.
Students who are older than this are not exempt: if they earn enough, they pay like any other employee.
If they don't do paid work during their student years, they are not credited with NICs for the years they are studying.
This creates a ‘gap’ in their contributions record, though most will still work for enough years after qualifying to merit a full state pension.
Low income earners
You don't have to pay National Insurance if you earn below a certain amount. The same applies if your self-employed profits are very low, though opting not to make Class 2 National Insurance contributions if you’re self-employed may deprive you of some benefits.
Stopping at state pension age
You stop having to pay National Insurance once you reach the state pension age (currently 65 for men and increasing to 65 for women by 2018), even if you carry on working beyond this. See our guide to tax and allowances for older people for more.
- Self employed? Find out all your need to know about tax in our guide
- Confused about your tax code? Take a look at our guide to understanding your tax code
- For any tax problems, call our experts on the Which? Money Helpline
