National insurance: what is it and how much do you pay?

Understanding national insurance (NI) and how it affects you is important.

It really pays to know the ins and outs so you can avoid any problems and receive all the benefits you may be due. 

Discover everything you need to know about national insurance below.

What is national insurance? 

NI is a tax on earned income collected by HMRC. Everyone needs an NI number before they can pay, and it’s possible to make voluntary contributions to avoid gaps in your NI record.  

There are different ‘classes’ of NI, and the class you pay depends on your employment status and the amount you earn. 

How does national insurance work?

To pay NI, you need an NI number, which ensures that any contributions you make are only recorded against your name.

It can be found on payslips, your P60, letters about tax, pensions or benefits, and in the NI section of your personal tax account. 

How much national insurance do you pay?

The amount of NI you pay depends on your employment status and how much you earn.

The Class 1 national insurance rate was recently cut from 10% to 8%.

• If you’re paid £1,048-£4,189 per month, your Class 1 NI rate is 8%.
• If you’re paid more than £4,189 per month, the rate is 2%.

When you’re in a Pay As You Earn (PAYE) system, your employer takes Class 1 NI contributions from your salary.

If you’re self-employed, you no longer have to pay Class 2 NI contributions, while the Class 4 rate was recently cut to 6%.

Class 4 NI contributions are based on your self-assessment tax return, and you pay them along with your income tax. 

When do you pay national insurance?

You start paying NI when you’re 16, providing you’re employed and earning at least £242 per week, or you’re self-employed and making more than £12,570 of profit a year.

You stop paying Class 1 contributions when you reach the state pension age.

With Class 4 NI contributions, you stop paying on 6 April after you reach the state pension age.

Learn more: Do you pay national insurance on pension contributions?  

What happens if you don’t pay national insurance?

If you don’t pay NI contributions, HMRC will send you a Notice of Penalty Assessment, after which you have 30 days to pay the penalty.

HMRC will also let you know what payments you’ve missed and how to settle them.  

When you miss NI payments and then fail to pay the penalty by the due date, the amount you owe will increase – by 5% after 6 months, and a further 5% if you haven’t paid after 12 months. 

What are the different national insurance classes?

Below are the various classes of national insurance for employees and employers.

Self-employed professionals no longer have to pay Class 2 NI contributions, but you can make voluntary contributions. 

• Class 1 NI applies to employees who earn more than £242 per week and are under the state pension age. It’s automatically deducted by your employer. 
• Class 1A or 1B are paid by employers on their employee’s expenses and benefits. 
• Class 3 are voluntary contributions you can make to ensure your NI record has no gaps. There are many reasons why your NI record might have gaps, such as being employed but with low earnings, being unemployed and not claiming benefits, or living and working abroad.
• Class 4 NI contributions apply to self-employed people earning profits of more than £12,570 in a year.   

How do you find your national insurance number?

You can find your NI number on your payslips if you’re employed, your P60 yearly tax statement and other tax correspondence.

Also, you can find your NI number in the national insurance section of your personal tax account online or via the HMRC app. 

If you’ve lost your NI number and cannot locate it in any of the places mentioned above, you’ll need to contact HMRC.

They won’t be able to tell you your NI number over the phone, but they will send your number by post within 15 days. 

To contact HMRC about a lost NI number, fill in the online form CA5403, print it out and post it to the address on the form.

Alternatively, you can contact the national insurance number helpline, 0300 200 3500. 

How do you apply for a national insurance number?

Firstly, you need to be sure you’re eligible, so you need to be a resident in the UK with the right to work, actively seeking work or have an offer to start a job. 

The next step is to apply online and prove your identity.

To do this, you’ll need either: 

• A valid passport from any country 
• A biometric residence permit (BRP) 
• A national identity card from a country in the EU  
• A national identity card from Norway, Liechtenstein or Switzerland 

It’s still possible to prove your identity without these documents, but you might need to attend an appointment.

You may be able to establish your identity by submitting digital photos of your documents and yourself. 

Once your identity is established, you’ll be emailed an application reference number. 

Who can provide the best support on national insurance?

Understanding your NI status can seem complicated – especially as new changes have been recently announced.

So, who can help you?

It’s a good idea to seek professional help if you’re unsure about your financial or tax affairs, but with NI, should you consider a financial adviser or an accountant?  

Put simply, accountants prepare financial documents, annual accounts and tax returns.

It’s all about the money going in and out of your accounts, ensuring you comply with tax laws, and avoiding potential pitfalls.

An accountant can help you improve cash flow, reduce costs and plan for future growth.  

A financial adviser tends to focus more on the bigger picture than on day-to-day financial activity. They help you focus on and achieve your strategic goals, highlighting opportunities, strengths, and weaknesses. 

As NI is a tax, it makes sense to talk to an expert accountant. They are more than qualified to guide you and ensure you pay the right amount of tax.