National Insurance
Your National Insurance (NI) number is on a document sent to you around the time of your 16th birthday, or just before. It has two letters followed by 6 numbers then one more letter. It is important to keep this safe.
If you have not got your NI number for some reason have a look at this website which tells you about how to get one.
Most people who work have to pay National Insurance contributions. There are four different kinds of contribution (known as classes of contribution) you might pay as an individual and during your working life you may change the class of contribution you pay or pay more than one class at the same time.
Contributions from National Insurance count towards some welfare benefits. HM Revenue and Customs is responsible for collecting National Insurance
In brief, the different classes of contribution are:
- Class 1: paid by employees and employers
- Class 2: paid only by people who are self employed;
- Class 3: paid as voluntary contributions by people who wish to protect their right to a state pension and who do not pay enough contributions in another class;
- Class 4: paid mostly by self-employed people in addition to Class 2 contributions. Payment of Class 4 contributions do not count towards benefits. Class 4 NIC depends on the level of your profits and is collected via self assessment.
If you start work or change jobs you should show your National Insurance number to your employer who will make sure your contributions are made correctly.
Find out more detailed information about how you pay NI contributions and find out the current rates for all classes of NIC.
National Insurance for the self employed
Self employed people are liable to pay two classes of contribution:
- Class 2 contributions (which count towards most benefits) are payable if you are normally self-employed, aged 16 or over but below state pension age.
- Class 4 contributions are calculated based upon a percentage of your net profits. You will pay it with any tax due on your self assessment tax return.
For further details see the HMRC website where there is a list of topics on National Insurance you can have a look at.
If you are self employed and you think your profits will be less than a set limit you can elect not to pay any contributions during the year and then the position can be reviewed once you know what your profits were for that tax year.
This is called a Small Earnings Exception. Download the form to enable you to claim the exception >>
Pensions and National Insurance
Normally part of your National Insurance payment goes toward funding a pension scheme which gives you a pension when you reach retirement age.
When you are working you can choose to build up an extra state pension as well as the basic pension.
This was previously called the State Earnings Related Pension or SERPs but from 6 April 2002 it has been called the State Second Pension and is sometimes known as Additional State Pension.
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