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UK National Insurance Scheme Finance

By: Kevin Watson MSc - Updated: 21 Mar 2018 | comments*Discuss
 
National Insurance Contributions

The purpose of National Insurance is to allow each person in the UK the chance to amass contributions for state benefits. These benefits are: Bereavement Allowance; Contribution-based Jobseeker’s Allowance; State Pension; Contribution-based Employment and Support Allowance.

The amount of contribution the government expects people to pay varies. It depends on the level of income, and whether someone is self-employed or works for an employer. The income thresholds change annually.

The requirement to pay National Insurance Contributions does not last for a lifetime. It stops when a UK citizen reaches the age at which he or she can receive the State Pension.

Who Pays?

People must pay National Insurance from age 16 onwards if they are working. Contributions start when income reaches a level that the government sets each year. Contributors must be self-employed or employed.

Voluntary Payments

Standard National Insurance contributions are obligatory. It’s also possible to pay National Insurance contributions on a voluntary basis.

People do this when:

  • They reside abroad but wish to keep their entitlement to the UK State Pension
  • They have failed to pay sufficient National Insurance contributions during a year for the State Pension or other benefits
  • They do not work and do not claim state benefits

How Much?

Employed people pay Class 1 National Insurance contributions. The lower level is 12% of earnings. The levels apply at certain income thresholds. Those who belong to an employer’s contracted-out Pension Scheme pay a lower rate.

Employers deduct the contributions from wages along with income tax.

Self-employed people pay Class 2 and Class 4 National Insurance contributions. Class 2 is a flat weekly rate of £2.95. Class 4 is a percentage of taxable profits and has two levels: 9% on earnings from £8,424 up to £46,350 plus an additional 2% on anything over £46,350.

For the latest details of all National Insurance income and percentage thresholds, contact HMRC (Her Majesty’s Revenue & Customs).

Credits

In some circumstances, people can receive National Insurance credits. These replace contributions that people cannot make because they’re not able to work. Someone may be ill, for instance, or acting as a carer.

Class 1 credits cover payments for the bereavement allowance, the State Pension and other benefits. Class 3 credits apply to bereavement benefits, the State Pension and nothing else.

Access

Access to the National Insurance scheme is by a National Insurance number. This number is also each person’s reference number for all aspects of the UK social security system.

The first two symbols and the last one of a National Insurance number are actually letters. There are six numbers in between these. A National Insurance number stays the same throughout someone’s life.

Those who live in the UK and whose parents or guardians receive child benefit for them should receive a National Insurance number before they reach 16 years of age.

Those who do not have a National Insurance number must contact the National Insurance Registrations Helpline. The phone number is 0845 915 7006. The helpline opens from 8 a.m. to 5 p.m., Monday to Friday.

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