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Understanding National Insurance

National Insurance (NI) contributions allow those who pay them to qualify for benefits such as the state pension. They are paid by anyone who has reached the age of 16, is employed, and earns a weekly wage of over £153. Those who are self-employed must pay NI contributions if their annual profit is more than £5,885. Contributions vary according to the amount of money people earn, and whether they are self-employed or employed.

Class 1 National Insurance is paid by people who are employed. The amount paid is usually equivalent to 12 percent of any weekly earnings that are more than £153 and less than £805, and two percent of any earnings greater than £805. For those who are employed, their employer is responsible for deducting the payments from wages and sending them to HMRC on their behalf.

Those who are self-employed pay Class 2 contributions. Unlike those who are employed, the self-employed must set up their contributions payments themselves by contacting HMRC. The amount paid will vary according to how much profit their business makes each year. Those who earn less than £5,885 a year can apply for an exemption from paying NI contributions, but this may not be in their interest if it leads to them becoming ineligible for benefits. Those who make a profit of over £7,755 a year must also pay Class 4 contributions and, again, the amount will vary according to their earnings.

Some people may end up with a gap in their NI contributions record, during periods when they were not in work or receiving a pension, and they can choose to pay Class 3 voluntary contributions to make up for the payments that they missed. It is important to ensure you have made enough NI contributions over your lifetime if you want to qualify for the full state pension on retirement.

Posted by Mark
August 28, 2014
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