MILLIONS of workers need to pay tax towards state benefits, known as National Insurance.
It goes into a pot that pays for benefits like sick pay and the state pension.
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But how does it work, and when do you need to pay? We explain all you need to know.
What is National Insurance?
National Insurance is a tax on your earnings, and goes towards state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a UK national, you should receive an NI number and card automatically before you turn 16.
This number allows the government to track your earnings and apply the right amount of tax.
Who currently pays it?
You pay National Insurance if you’re 16 or over and either:
- an employee earning above £242 a week
- self-employed and making a profit of £6,725 or more a year
It is deducted from your wages each month.
If you’re employed, you can see your contributions by looking at your pay slip.
Once you reach state pension age, you don’t need to pay it at all.
There are different types of National Insurance – known as “classes” – and the type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.
Why do I need to pay it?
Paying National Insurance entitles you to some state benefits, though these vary according to your employment status.
If you haven’t met the minimum amount of contributions, you may not qualify for some benefits.
For instance, you need to pay National Insurance for a set number of years to be entitled to receive the state pension.
You need at least 10 years’ worth of contributions to get any state pension at all, and 35 years to get the full amount.
You can check how much National Insurance you’ve paid using the Government Gateway portal. You will need a login and password to do this.
If you do not have a login to the Government Gateway portal you can set one up, but will need your National Insurance number to do so.
If you are employed, your contributions will automatically be deducted from your take-home pay, so opting out is not possible anyway.
However, the self-employed have to manage these payments themselves.
You will then be required to complete a Self Assessment tax return every year – which will assess how much National Insurance you should pay.
What are the thresholds and how much do I pay?
A change in April last year saw millions of workers paying 1.25% more NI.
But that was reversed again from November 6, 2022, saving workers an average of £135 a year in 2022, rising to £330 in 2023-24.
Rates fell from 13.25% to 12% and from 3.25% to 2% – the same as before April 2022.
The threshold for National Insurance payments is currently £12,570 a year for employed workers and £6,725 for self-employed people.
In November 2022, the Chancellor announced that thresholds will be frozen.
The freeze was meant to come to an end in 2026, but extending this will drag millions more into paying a higher tax rate.
That is because inflation and rising wages will mean more workers will go over the thresholds for paying higher tax.
Thresholds would usually be tweaked to take both of those things into account.
Now, following the u-turn on April’s National Insurance hike, most people pay 12% NICs on anything they earn between £242 and £967 per week.
That’s £1,048 and £4,189 a month.
You have to pay 2% on anything you earn over £967 a week – or £4,189 per month.
But, the exact amount that you will save depends on how much you earn.
Personal finance specialists at Hargreaves Lansdown have worked out how much people will save based on their earnings.
The tax cut would see an individual on £15,000 save £24 a year.
Those on £20,000 will save £93 a year and those on £25,000, £124 a year.
Individuals earning £30,000 a year will save £218 a year and those on £40,000 will save £343 a year.
Lower earners, on less than £12,570 a year, won’t benefit from the change.
That’s because you don’t pay any tax under this amount – which is your tax-free personal allowance.
The tax rise was due to be branded under a Health and Social Care Levy, but this was also scrapped.
