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What do I need to know about National Insurance?

When you're self employed, or working for someone else, it can seem a bit daunting when you're told you have to pay someone and you have little to no control over it. But hopefully this post will show you that you don't have to worry and, in fact, it can be simple.

Let's cover the basics, what is National Insurance?

National Insurance is a number of contributions that are paid to the UK Government in order to provide benefits to employees. These benefits can be: insurance against illness and unemployment, and then later in life, retirement pensions.

So it's not such a bad thing because you do get things back from it such as your pension and sick pay.

Do I qualify?

Not everyone has to pay National Insurance Contributions (NIC). In order to qualify you must:

  • be over the age of 16, and
    • be self employed, earning an annual profit of at least £5,965, or
    • be employed and earning at least £155 weekly/£672 monthly (more information here)

In order to pay NIC you will need a National Insurance Number, this is generally posted out to you on, or just after, your 16th birthday.

The Different Classes

There are different classes of National Insurance, they can be found here on the Gov UK website. The type that you pay will vary on the type of employment you are in and the amount of money that you earn.

When do I stop paying?

If you're employed then you stop paying Class 1 NIC by the time you reach the state pension age bracket.

If you're self employed then you also stop paying Class 2 NIC by the time you reach the state pension age bracket (or about 4 months after in order to clear any charge that you owe).

If you pay Class 4 NIC then you stop paying on 6th April of the year that you reach the state pension age bracket.

Recognising your National Insurance Number

Your National Insurance number is alphanumeric and 9 digits long, it will never change. It ensures that any NIC you pay will be logged against your name. It will always be in the format of AA 11 11 11 A. Many different organisations can request your National Insurance number as a form of proof of entitlement to work in the UK, for example, if you're starting employment in a new business.

Your National Insurance number can be found on:

  • your Tax Return
  • your P60
  • your Payslip

Who exactly needs to know your number?

It is important that these organisations/people know your National Insurance Number:

  • Your employer, in order to declare to HMRC how much you have been paid.
  • HMRC
  • Your local council, if you're claiming Housing benefit.
  • The DWP, if you're claiming state benefits
  • Electoral Registration Officers (to verify your identity should you wish to register to vote)
  • Your ISA provider, if you wish to open one
  • Your bank or building society in relation to tax on interest
  • The Student Loan Company, if you're applying for one.

To protect against fraud you should never reveal your National Insurance Number to anyone who doesn't need it.

I'm taking on my first employee, is there anything I should know?

Before someone starts working for you, ensure they provide you with their National Insurance number for payroll. Without it, you won't be able to run payroll and submit their details to HMRC.

It's always worth reading any starter guides for your specific payroll software, as these normally tell you what information would be required including their name, date of birth and address.

Finally; How do I pay?

  • If you're employed, it's taken from your wages by your employer as tax.
  • If you're self-employed and claiming Class 2 or Class 4 NIC then you pay through Self-Assessment. There are regulations in place for certain individuals that do not pay Class 2 NIC through their Self-Assessment.
  • If you're self-employed and employed then your employer will subtract and Class 1 NIC from your wages and you will have to claim Class 2 and Class 4 through your Self-Assessment for your self-employed work.
  • If you're the employer, when you submit the RTI (Real Time Information) data to HMRC during payroll, you'll be told how much you will need to pay for your employees. Your payroll software should also deduct this from their gross pay for that pay period. You can then pay HMRC in a number of ways. Check out the full details here.

Conclusion

National Insurance can be tricky if you don't know much about it, but hopefully this post has cleared up some things.

If you're unsure, contact HMRC who should be able to point you in the right direction.

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