אתר ביטוח לאומי (NI) is a key component of the Welfare State. It enables individuals to qualify for certain state benefits, including the State Pension.
NI contributions are paid by employees and employers on earnings and by self-employed people on profits above a set threshold. These are credited to an individual’s NI account.
Information about National Insurance
National Insurance is an established part of the UK tax system that forms the foundation of a number of social benefits including state pensions, sickness pay and maternity leave. It also contributes to the NHS and local authority care.
Employees pay NI contributions (abbreviated as NIC) through their employer’s PAYE system on top of the wages they receive. Employers are expected to match these payments. Self-employed people pay Class 2 and Class 4 contributions, the former based on a flat weekly rate and the latter based on their level of taxable profits.
The main reason for paying NI is to build up entitlement to the State Pension and other social security benefits. People can also make voluntary contributions if they have gaps in their NI record.
If you’re a small business owner, it’s worth familiarising yourself with the ‘how’s and ‘why’s’ of NICs so that you can help your employees understand it better. This can be a bit complicated as the calculations change from year to year and the exact amount you have to pay will depend on how much you earn. This is why it’s important to use a Point of Sale (POS) system like Square that helps you keep track of stock, staff, income and outgoings. It can also help you keep on top of your NI obligations.
How to get a National Insurance number
When someone works in the UK, they’re paying National Insurance contributions through their employer (class 1 NICs) and also potentially themselves as self-employed individuals (class 2 NICs). These contribute towards their eventual entitlement to benefits such as the full State Pension. However, they’re only awarded the benefits if their earnings pass certain thresholds, and the government uses a person’s NI number to keep track of their record of contributions.
Normally, you’re sent your NI number — which looks something like AB123456C — automatically just before your 16th birthday. It’s the same number you’ll have for life, and it keeps a record of your NI contributions that may eventually entitle you to some benefits or your full State Pension.
There are some companies who charge money for online NI number applications, but the process is free to do yourself via HMRC’s site or by calling their phone line. If you search ‘NI number’ on Google, you’ll sometimes find these third-party companies who offer to help you get your number, but be aware that they are unaffiliated with the government and will charge you for something you can do yourself for free. You can also apply for your NI number by post. This is a more involved process but is free. For more information, see this guide or the official government page.
How to pay National Insurance contributions
National Insurance is a tax on earnings and self-employed profits paid by employees, employers and the self-employed. It is used to build entitlement to various social security benefits including the State Pension and maternity/paternity leave. It is important for businesses to keep on top of any changes to the system or new legislation that may affect their business and employees.
Employees are required to make NI payments via their payroll and they will pay a fixed percentage of their income, based on their National Insurance category letter (which identifies their status and income threshold). As an employer it is your responsibility to deduct these contributions from your employees and forward them to HMRC, typically on a weekly or monthly basis.
You can also pay voluntary NI contributions (known as Class 3). These are designed to fill gaps in your National Insurance contribution record, which can sometimes help you qualify for the full State Pension. However, Money Saving Expert points out that these payments will not necessarily increase the amount you will receive when you reach State Pension age.
You can make these payments by completing form NI38 and sending it to HM Revenue and Customs. You can also make payments quarterly or monthly by setting up a Direct Debit with HMRC. HM Revenue and Customs accepts payments online, by telephone, in person or using Faster Payments.
How to claim National Insurance benefits
The amount of National Insurance credits you have can affect how much you will get when you retire. You might be given these automatically, or you might have to make a claim.
You may be able to claim credits for periods when you were unable to work due to illness or caring for someone. You might also be able to claim for periods when you were married to, or in a civil partnership with, a member of the armed forces and accompanying them on HM Forces postings overseas.
If you have paid National Insurance contributions for at least 35 years, you will be entitled to a full State Pension. There are other benefits you might be able to claim, such as sickness benefit or parental leave pay.
You can protect your entitlement to the State Pension and other benefits if you continue to pay Class 2 National Insurance contributions (external link) while working abroad. You will need to meet certain conditions, including that you are an EEA citizen or Switzerland. Contact HMRC (external link) to find out more.