National Insurance Contributions – rates and allowances

You have to pay national insurance contributions if you are employed or self-employed in Great Britain or Northern Ireland. There are also situations where you can choose to pay NI while working abroad.

Why pay it at all?

National Insurance payments were introduced in 1911 to help the employed pay for health and pension insurance benefits. The system has grown from those roots and is now used to pay for:

·  The NHS

·  Unemployment benefit

·  Sickness and disability allowances

·  The State Pension

The government can also borrow from the National Insurance fund to pay for other projects.

Your entitlement to the basic State Pension and certain other benefits could be affected if there are gaps in the National Insurance Contributions record. These gaps can occur if:

·  You spend time earning less than the ‘lower earnings limit’

·  You have been unemployed and not claiming benefit

·  You were self-employed and did not pay Class 2 Contributions due to Small Earnings Exception

·  You lived abroad and chose not to contribute voluntarily

So, to qualify for a full State Pension you need 30 years’ worth of contributions or credits. These are classed as qualifying years. If you reach retirement age with fewer than 30 years then your State Pension will be less than £110.15 per week.

Why 4 different classifications?

There are 4 classes of NI contributions to handle the contributions of the employed, self-employed, and those living abroad, as well as those claiming credits. The four sections are as follows:

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.

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 HMRC in order to qualify for the exception.

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.

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.

Scroll down to see a table of National Insurance Contribution rates and allowances for the 2011-12, 2012-13, 2013-14, and 2014-15 tax years.

£ per week / 2011-12 / 2012-13 / 2013-14 / 2014 - 15 /
Lower earnings limit, primary Class 1 / £102 / £107 / £109 / £111
Upper earnings limit, primary Class 1 / £817 / £817 / £797 / £805
Upper accrual point / £770 / £770 / £770 / £770
Primary threshold / £139 / £146 / £149 / £153
Secondary threshold / £136 / £144 / £148 / £153
Employees' primary Class 1 rate between primary threshold and upper earnings limit / 12% / 12% / 12% / 12%
Employees' primary Class 1 rate above upper earnings limit / 2% / 2% / 2% / 2%
Class 1A rate on employer provided benefits (1) / 13.8% / 13.8% / 13.8% / 13.8%
Employees' contracted-out rebate (for contracted-out salary related schemes only) / 1.6% / 1.4% / 1.4% / 1.4%
Married women's reduced rate between primary threshold and upper earnings limit / 5.85% / 5.85% / 5.85% / 5.85%
Married women's rate above upper earnings limit / 2% / 2% / 2% / 2%
Employers' secondary Class 1 rate above secondary threshold / 13.8% / 13.8% / 13.8% / 13.8%
Employers' contracted-out rebate, salary-related schemes / 3.7% / 3.4% / 3.4% / 3.4%
Employers' contracted-out rebate, money-purchase schemes / 1.4% / Abolished from 6 April 2012 / N/A / N/A
Class 2 rate / £2.50 / £2.65 / £2.70 / £2.75
Class 2 small earnings exception / £5,315 per year / £5,595 per year / £5,725 per year / £5,885 per year
Special Class 2 rate for share fishermen / £3.15 / £3.30 / £3.35 / £3.40
Special Class 2 rate for volunteer development workers / £5.10 / £5.35 / £5.45 / £5.55
Class 3 rate / £12.60 / £13.25 / £13.55 / £13.90
Class 4 lower profits limit / £7,225 per year / £7,605 per year / £7,755 per year / £7,956 per year
Class 4 upper profits limit / £42,475 per year / £42,475 per year / £41,450 per year / £41,865 per year
Class 4 rate between lower profits limit and upper profits limit / 9% / 9% / 9% / 9%
Class 4 rate above upper profits limit / 2% / 2% / 2% / 2%
Additional primary Class 1 percentage rate on deferred employments / 2% / 2% / 2% / 2%
Additional Class 4 percentage rate where deferment has been granted / 2% / 2% / 2% / 2%

For more information go to www.gov.uk/national-insurance/overview