Freelancer working from home office | A Complete Guide to National Insurance

1. What is National Insurance?
2. Who needs to pay National Insurance?
3. Why do I need to pay National Insurance?
4. How do I pay National Insurance?
5. How much National Insurance do I need to pay?

6. National Insurance contributions for the 2023/34 tax year

The Complete Guide to National Insurance

February 3, 2022

This article was updated 28th April 2023.

Whether you're an employee, business owner or self-employed sole trader, you'll legally need to pay National Insurance contributions if you're earning above a certain amount. But what even is National Insurance, and where does the money go?

In this article, we’ll be covering everything you need to know about National Insurance, from what it is and why we pay it, to who needs to pay it and how much needs to be paid.

What is National Insurance?

National Insurance (NI) is a tax on earnings and self-employed profits, and is paid by employees, employers and self-employed sole traders to qualify for certain benefits and the State Pension.

National Insurance is usually taken as a deduction at source under Pay As You Earn (PAYE) if you're an employee or limited company director. However, if you're a self-employed sole trader, you'll pay your National Insurance contributions alongside the payments on account you make towards your Income Tax bill.

Who needs to pay National Insurance?

At the time of writing, National Insurance is mandatory if you're 16 or over and are either a:

UK employee earning above £242 a week

Self-employed individual and making a profit of more than £12,570 a year

If you're an employee earning between £123-£242 a week, or a self-employed individual with profits between £6,725 and £12,570 a year, you won't need to pay National Insurance, but you can still qualify for benefits and the State Pension. Here, your contributions are treated as paid to protect your National Insurance record, but you can make voluntary National Insurance contributions to plug the gaps if you wish.

If you are still earning by the time you reach State Pension age, you will no longer need to make National Insurance contributions — meaning that, as a result, you’ll see an increase in your take-home pay. However, when exactly you stop paying National Insurance depends on the type of employment you’re in, which we’ll cover in further detail below.

Why do I need to pay National Insurance?

Aside from being a legal requirement if you are eligible to pay National Insurance, a gap in your National Insurance contributions record could affect the state benefits that you are entitled to, such as the State Pension.You might be able to apply for National Insurance credits if you cannot work, for example if you cannot work due to illness or if you are a carer for someone.

How do I pay National Insurance?

For most workers, National Insurance is deducted at source by their employer through Pay As You Earn (PAYE), with the total amount deducted displayed on the employee’s payslip.

For self-employed sole traders and limited company directors, however, your National Insurance is paid when you pay your Self Assessment tax bill on 31st January every year.

To pay your National Insurance, you’ll need to make sure you have a National Insurance number, a unique code assigned to you made up of a combination of letters and numbers that matches you to your tax records. You can find your NI number on one of the following documents:

Your payslip Your P60 On letters about your tax, pension and benefits In the National Insurance section of your personal Government Gateway account

You should automatically be given a National Insurance number if you are a UK citizen just before you turn 16, but you can apply for a National Insurance number if you don’t have one at GOV.UK.

You cannot, however, request a new National Insurance number if you lose yours, so be sure to keep your National Insurance number safe to protect yourself from identity fraud.

How much National Insurance do I need to pay?

The total amount of National Insurance you need to pay comes down to three key factors: the National Insurance class you fall into, the amount you earn and the National Insurance rate for the tax year in question.

National Insurance classes

The first factor, the National Insurance class that you fall into, is determined by your employment status. As mentioned above, if you’re not earning you won’t be paying National Insurance, but can pay voluntary National Insurance contributions to avoid gaps in your National Insurance record.The National Insurance classes and the employment status of those who fall into each category are outlined below:

Voluntary contributions (can be paid to fill or avoid gaps in your National Insurance record

National Insurance class	Who pays
Class 1	Employees earning more than £242 a week and under State Pension age
Class 1A or 1B	Employers pay these directly on their employee's expenses or benefits
Class 2	Self-employed people earning profits of £12,570 or more a year
Class 3
Class 4	Self-employed people earning profits of £12,570 or more a year

Source: GOV.UK

National Insurance contributions for the 2023/34 tax year

Class 1 National Insurance rates

Your pay	Class 1 National Insurance rate
£242 to £967 a week (£1,048 to £4,189 a month)	12%
Over £967 a week (£4,189 a month)	2%

Class 2 and Class 3 National Insurance

Class	Rate
Class 2	£3.45 a week
Class 3	£17.45 a week

Note: If you're paying Class 2 contributions for the previous tax year or Class 3 contributions for the previous 2 tax years, you'll need to pay the original rate for those tax years. You can find these rates at GOV.UK.

Class 4 National Insurance rates

Threshold	£ per year	Rate
Lower Profits Limit	£12,570	9%
Upper Profits Limit	£50,270	2%

While the National Insurance hikes might be enough to set any self-employed sole trader on edge, Ember has your back. By combining easy automation with the expertise of our qualified accountants, we’ll make sure you get the all tax breaks you’re entitled to, helping you get more of your money back.

Rachel Cameron-PotterContent Marketer

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