National Insurance explained National Insurance rates
National Insurance has to be paid by both employed and self-employed workers.
Those who are out of work might also choose to make voluntary contributions, so that they are eligible for the various benefits associated with the tax.
Here, we calculate how much each type of worker has to pay.
Class 1 National Insurance Contributions
You pay Class 1 contributions on your salary or wage, commission, bonuses and overtime, as well as on sick pay and maternity, paternity and adoption pay from an employer.
National Insurance earnings threshold
National Insurance is calculated on gross earnings (before tax or pension deductions) above the earnings threshold. For 2015-16 the National Insurance threshold is £155 a week or £8,060 a year.
- If you earn above the threshold you pay 12% of your earnings between £8,060 and £42,385
- Anything you earn above £42,385 a year, you pay National Insurance at 2%
- If your earnings are below the earnings threshold you pay no National Insurance contributions
- You still build up rights to benefits, provided you earn £5,824 a year or more up to the lower earnings limit.
- This is done through National Insurance credits.
Go further: National Insurance credits - a detailed round-up of who is entitled to them
Class 2 National Insurance Contributions
You pay Class 2 contributions if you are self-employed.
- Class 2 contributions are £2.80 a week for 2015-16.
- On profits (earnings less allowable expenses) below a certain limit – £5,965 for 2015-16 – you can elect not to pay National Insurance.
Class 4 National Insurance Contributions
If you're self-employed, you must additionally pay Class 4 contributions once your profits reach a certain limit.
- In 2015-16 Class 4 contributions are 9% of taxable profits between £8,060 and £42,385
- On profits over £42,385, Class 4 contributions are 2% of profits.
Go further: Tax for the self-employed - this comprehensive guide explains which taxes you are likely to have to pay
Class 3 National Insurance Contributions
These are voluntary contributions that count towards your total contribution record. You can pay them only if:
- you're not working
- you're not liable for, or you're exempt from, Class 1 or Class 2 contributions
- your contributions for a specific year aren't enough to count towards state pension entitlement, or
- you live abroad.
The 2015/16 Class 3 NI rate is £14.10 a week.
If you're self-employed and exempt from Class 2 contributions on account of low profits, it is cheaper to pay Class 2 NI contributions voluntarily than make Class 3 NICs.
The same applies for years when you work overseas for a foreign employer, but you still want to get the benefits that paying Nation Insurance entitles you to you for when you come back to the UK. Both count towards your benefits entitlement.
Class 3A National Insurance Contributions
A new type of voluntary contribution, which will be available from October 2015 for those who will have reached state pension age by 6 April 2016. Unlike normal NICs, these will be made in a one-off lump-sum payment. Making them will allow you to boost your state pension- by up to a maximum extra of £25 per week. The idea is to bring the state pension you receive into line with the new single-tier state pension which begins on 6 April 2016 for people who reach state pension age after that date.
For those aged 65, an extra £1 per week (£52 per year) of state pension income will cost £890. Increasing your state pension by £25 per week (£1,300 per year) will cost £22,250.
The cost of Class 3A NICs falls with age (like an annuity). For those aged 70, an extra £1 per week will cost £779, for those aged 75 it costs £674 and for those aged 80 it will be £544.
Reduced rate National Insurance Contributions
Until 1977, married women could opt to make National Insurance contributions at a reduced rate. They stopped building up entitlement to state pension in their own right and instead relied on their husband's National Insurance contributions record.
Women who took this option can continue to make reduced National Insurance contributions or pay at the full rate and build up individual pension entitlement. With reduced contributions, their maximum entitlement is currently 60% of basic state pension.
From 2016, any women in this position who have yet to reach state pension age will no longer be eligible. Their pension entitlement will depend instead on the number of qualifying years' National Insurance contributions they have made in their own right. The minimum required to get any state pension is expected to be 10.
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