National Insurance Tax

National Insurance contributions (NIC) help to pay for some state benefits including retirement pensions. NIC that you pay can earn you the right to receive certain benefits.

You pay National Insurance if you’re 16 or over and either:

an employee earning above £157 a week
self-employed and making a profit of £6,025 or more a year

You need a National Insurance number before you can start paying National Insurance contributions.

If you earn between £113 and £157 a week, your contributions are treated as having been paid to protect your National Insurance record.

You have a National Insurance number to make sure your National Insurance contributions and tax are recorded against your name only.

It’s made up of letters and numbers and never changes.

You can find your National Insurance number:

on your payslip
on your P60
on letters about your tax, pension or benefits
in the National Insurance section of your personal tax account

To qualify for some UK state benefits, you need to have paid NIC of a certain level. These state benefits are called contributory benefits.

There are other benefits where, provided the rules for claiming apply to you, it does not matter whether or not you have paid any or enough NIC.

Benefits which do not depend on NIC include:

attendance allowance and disability living allowance
personal independence payment
child benefit
guardian’s allowance
income-related employment and support allowance
income-based jobseeker’s allowance
industrial injuries benefits
carer’s allowance
severe disablement allowance
statutory payments, for example, statutory sick pay
working tax credit and child tax credit
war widow’s or widower’s pension
pension credit
universal credit

the following table describes which type of contribution counts towards which benefit:

Benefit	Class 1: employees	Class 2: self-employed	Class 3: voluntary contributions
Basic State Pension	Yes	Yes	Yes
Additional State Pension	Yes	No	No
New State Pension	Yes	Yes	Yes
Contribution-based Jobseeker’s Allowance	Yes	No	No
Contribution-based Employment and Support Allowance	Yes	Yes	No
Maternity Allowance	Yes	Yes	No
Bereavement benefits	Yes	Yes	Yes

Class 4 contributions paid by self-employed people with a profit over £8,164 don’t usually count towards state benefits.

National Insurance classes

The class you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.

National Insurance class	Who pays
Class 1	Employees earning more than £157 a week and under State Pension age – they’re automatically deducted by your employer
Class 1A or 1B	Employers pay these directly on their employee’s expenses or benefits
Class 2	Self-employed people – you don’t have to pay if you earn less than £6,025 a year (but you can choose to pay voluntary contributions)
Class 3	Voluntary contributions – you can pay them to fill or avoid gaps in your National Insurance record
Class 4	Self-employed people earning profits over £8,164 a year

What happens when you are not paying contributions?

For most people, there will be periods of their working life when they aren’t paying contributions because they’re not working. Without help this would mean you would have gaps in your National Insurance record and this could prevent you getting benefits. In particular, it could affect your State Pension. The National Insurance scheme recognises many of these situations and allows you to qualify for credits including credits for parents and carers if you are looking after a child or disabled person.

How to minimize the NIC?

The different rates of National Insurance contributions can mean you will pay less if you are self-employed rather than an employee of your own company.

If you operate as a company, you may be able to draw money in the form of dividends. Tax and National Insurance is not payable on dividend income up to the dividend allowance threshold of £5,000 (reducing to £2,000 per year from April 2018). Dividend income over the initial allowance is subject to tax (7.5% for basic rate tax payers, 32.5% for higher rate payers and 38.1% for additional rate payers). But special anti-avoidance rules mean that in some circumstances payments like this are taxable (and subject to National Insurance contributions) in the same way as employment income.