National Insurance Contributions
Written by Ray Coman
All UK taxpayers are liable to national insurance between the age of 16 and state pension age. A person outside of these age limits is not liable to national insurance on their income.
National Insurance Contributions on Employment
|Earnings per Month||Rate Payable||Earnings per Month||Rate payable|
|£0.01 - £737.00||Nil||£0.01 - £797.00||Nil|
|Over £4,189.00||13.80%||Over £4,189.00||2%|
|Class 1A & 1B (employers only)||13.80%|
Note: The first £4,000 of employer's liability relieved by the employment allowance. From 6 April 2020, the employment allowance will only apply to companies with an NIC bill of less than £100,000. No employers NIC for employees aged under 21 (and apprentices up to age 25) on earnings up to £962.00 per week (the Upper Earnings Limit).
National Insurance Contributions on Self-Employment
|Rate Payable||Earnings per year|
|Class 2 (Self Employed)||£3.05 per week||above small profit threshold of £6,515|
|Class 3 (Voluntary)||£15.40 per Week|
|Class 4 (Self Employed)||0%||Profits up to £9,568|
|9%||Profits from £9,568 to £50,270|
|2%||Profits above £50,270 per annum|
The lower earnings limit is the amount of earnings up to which a person will not accrue any social security benefits.
A taxpayer requires a number of qualifying years (35 years from 2016/17) to secure entitlement to the basic state pension. A year of earnings above the lower earnings limit will add a year towards the minimum number required to secure a basic state pension.
Where an employer does not pay any employee or director above the lower earnings' limit, there may not be a requirement to register as an employer with HMRC.
The primary limit is the threshold at which an employee become liable to NICs and the secondary threshold is the limit at which the employer becomes liable to pay NICs.
From 2016/17 it is no longer possible to accrue an additional state pension based on making more national insurance contributions. Consequently, there is no longer an upper accruals point.
The employment allowance exempts employers' national insurance liability below a threshold. This allowance limit is £4,000 from April 2020. However, the only director of a company is no longer entitled to the employment allowance.