National Insurance is a tax on earnings that both employers and employees. It goes into the National Insurance Fund to pay for a variety of benefits such as the state pension, statutory sick pay, and maternity leave. Thus, what are the employer’s national insurance, contributions, and rates? This article is intended to assist you, as either an employer or employee, in better understanding the purpose of National Insurance and why you need to pay it.
What is National Insurance?
In the United Kingdom, National Insurance (NI) is a critical component of the benefits system. It was established by the National Insurance Act 1911 and was later expanded by the Labour government in 1948.Â
Generally, It functions as a kind of social security because paying NI contributions entitles workers and their families to certain government benefits.
Initially, it began as a contributory kind of sickness and unemployment insurance and ultimately expanded to include retirement pensions and other benefits.
Typically, workers pay payments from the age of 16 until they are eligible for the pension scheme. Working people making around or over a threshold, otherwise known as the Lower Earnings limit, are required to make contributions. However, this limit value is evaluated each year. On the other hand, Self-employed people pay a portion of their taxes in the form of a fixed weekly or monthly payment. And as a percentage of net profits above a level that is evaluated regularly. People can also make voluntary contributions to fill in any gaps in their contribution history and therefore protect their benefit eligibility.
In addition, HM Revenue and Customs (HMRC) is in charge of collecting contributions. On the contrary, national insurance contributions account for a large amount of the UK government’s revenue, with £145 billion raised in 2019-20.
Nevertheless, the benefit element contains several contributing benefits, including availability as well as money, which the claimant’s contribution history and circumstances control. Meanwhile, participants do receive weekly income as well as some lump-sum payouts in the event of death, retirement, unemployment, maternity, or disability. However, You will need a National Insurance number to get benefits that have to do with contributions.
What Is National Insurance Number
A National Insurance Number is a type of individual tax identification. One that allows taxes collected from an individual to be linked to them to prove their eligibility for certain government benefits.
Benefits including state pensions, compulsory sick pay, and maternity and paternity leave are funded in part by national insurance payments. In the meantime, an increase in NI starting in April 2023 will also contribute to the NHS and social care.
In addition, a person’s job status will entirely determine the payment class (from 1 to 4). Likewise, employed people (under the age of the state pension) pay Class 1 contributions.
Also, subclasses 1A and 1B of Class 1 National Insurance must be paid by employers on some employee benefits. This, however, includes corporate cars and medical insurance, as well as many other extra payments such as redundancy payouts.
Who needs a National Insurance number?
For the most part, anyone who’s willing to work in the United Kingdom must obtain a National Insurance number. Employees are required to contribute anytime they make more than £184 per week, or £6,515 per year if self-employed.
However, HMRC and the Department for Work and Pensions (DWP) use the National Insurance numbers to identify personal contribution records.
How Do You Get a National Insurance Number?
Typically, at the age of 16, every UK citizen will acquire their National Insurance number. Meanwhile, an employee’s number will appear on all payslips, P45s, and P60s they get.
At the same time, if you misplace your NI number, go to the gov.UK website to get a replacement. However, this should arrive within 15 working days after you submit your application.
Likewise, If you live in the UK and have the legal right to work, you can request an NI number. Meanwhile, It is completely free to apply for a National Insurance number.
In addition, if you are a non-citizen, you can begin working in the United Kingdom by demonstrating your eligibility to work.
Employer’s national insurance contributions
Employer payments to the national insurance program are taxes that employers must pay for their employees as part of the scheme’s financing.
Specifically, employees and employers pay “National Insurance Contributions” (NICs) on earnings, and employers pay “National Insurance Contributions” (NICs) on specific benefits-in-kind offered to employees. On the other hand, the self-employed make a contribution based on a percentage of net profits above a specified threshold. And also a predetermined weekly or monthly payment.
However, Individuals can also make voluntary contributions to fill in any gaps in the history of their contributions and therefore safeguard their eligibility for benefits. HM Revenue and Customs (HMRC) collects contributions, as well as income tax and repayments of Student Loans and Postgraduate Loans, through the PAYE system.
In addition, people who are caring for a child or a seriously disabled person for more than 20 hours per week or those claiming unemployment or sickness benefits get National Insurance credits, which safeguard their entitlement to various benefits.
Meanwhile, National Insurance contributions account for 18 percent of total revenue in the 2019–2020 fiscal year, making them a considerable contributor to UK government finances.
National Insurance Contribution Classes
Generally, some state benefits, like retirement pensions, are funded in part by national insurance. However, you have the right to various benefits based on your national insurance contributions (NIC).
However, the type of contribution you pay depends on whether you work for an employer or you are self-employed and working for yourself or in a partnership.
Employees
In particular, employees pay Class 1 national insurance contributions on wages over the primary level of £184 per week. On the other hand, any earnings beyond £967 per week will only be subject to 2% contributions.
However, you won’t need to pay any contributions if your income is below the primary threshold. Likewise, If your weekly wages are between £120 (the lower earnings limit) and £184, you will be treated as if you were paying national insurance contributions, even if you aren’t.
On the other hand, employers must also pay 13.8 percent in Class 1 NICs (commonly known as secondary contributions) on each employee’s earnings above the primary level. However, this, among many other factors, contributes to the employee’s right to statutory compensation.
Self-Employed
Normally, you must pay two types of NICs if you are your boss. There is a weekly flat rate (Class 2) that you must pay. Meanwhile, the majority of people now include Class 2 contributions in their self-assessment tax bill. The HM Revenue and Customs (HMRC) website, however, has information for people who do not pay by self-assessment.
Nevertheless, the second category of NICs (Class 4) depends on your profit level.
Voluntarily Contributions
You can also pay NIC voluntarily (Class 3).
If you are self-employed and believe your profits will be less than £6,515 per year, you won’t need to pay Class 2 NIC. You will, however, have the option of paying Class 2 voluntarily in order to protect your state pension as well as other benefits.
In the same instance, you can also decide to pay voluntary contributions to protect your pension claim. However, if you are employed but earn less than £120 per week, you should first verify your benefit eligibility to see if you are eligible for NI credits instead.
Employers’ National Insurance Rates
The current rates HMRC confirmed the 2023–24 National Insurance (NI) rates in an email to software developers, as shown in the below tables. The table shows earnings thresholds as well as the National insurance contribution rates.
Glossary
LEL (Lower Earnings Limit)
PT: Primary Threshold
ST: Secondary Threshold
FUST: Freeport Upper Threshold
UEL: Upper Earnings Limit
UST: Upper Secondary Threshold
AUST: Apprentice Upper Secondary Threshold
VUST: Veterans Upper Secondary Threshold
Earnings Thresholds
| LEL | PT | ST | FUST | UEL/UST/AUST/JUST | |
| Weekly | £123 | £190 | £175 | £481 | £976 |
| 2 Weekly | £246 | £380 | £350 | £962 | £1,934 |
| 4 Weekly | £492 | £760 | £700 | £1,924 | £3,867 |
| Monthly | £533 | £823 | £758 | £2,083 | £4,189 |
| Quarterly | £1,599 | £2,470 | £2,275 | £6,250 | £12,568 |
| Half-Yearly | £3,198 | £4,940 | £4,550 | £12,500 | £25,135 |
| Annual | £6,396 | £9,880 | £9,100 | £25,000 | £50,270 |
Employees Contribution
| Letter | Earnings below LEL | Earnings at or above LEL up to and including PT | Earnings above PT up to and including UEL | Balance od earnings above UEL |
| A | NIL | 0% | 13.25% | 3.25% |
| B | NIL | 0% | 7.10% | 3.25% |
| C | NIL | 0% | NIL | NIL |
| F | NIL | 0% | 13.25% | 3.25% |
| H | NIL | 0% | 13.25% | 3.25% |
| I | NIL | 0% | 7.10% | 3.25% |
| J | NIL | 0% | 3.25% | 3.25% |
| L | NIL | 0% | 3.25% | 3.25% |
| M | NIL | 0% | 13.25% | 3.25% |
| S | NIL | 0% | NIL | NIL |
| V | NIL | 0% | 13.25% | 3.25% |
| Z | NIL | 0% | 3.25% | 3.25% |
National Insurance Letters Category
A: All not covered by another category
B: Married women as well as widows entitled to pay reduced NI
C: Employees over state pension age
F: Freeport standard
H: Apprentice Under 25
I: Freeport married woman’s reduced rate election (MWRRE)
J: Deferment
L: Freeport deferment
M: Under 21
S: Freeport over state pension age
V: Veterans’ standard
Z: Under-21 deferment
Employers Contribution
| Letter | Earnings below LEL | Earnings at or above LEL up to and including PT | Earnings above PT up to and including UEL | Balance of earnings above UEL |
| A | NIL | 0% | 13.25% | 3.25% |
| B | NIL | 0% | 7.10% | 3.25% |
| C | NIL | 0% | NIL | NIL |
| F | NIL | 0% | 13.25% | 3.25% |
| H | NIL | 0% | 13.25% | 3.25% |
| I | NIL | 0% | 7.10% | 3.25% |
| J | NIL | 0% | 3.25% | 3.25% |
| L | NIL | 0% | 3.25% | 3.25% |
| M | NIL | 0% | 13.25% | 3.25% |
| S | NIL | 0% | NIL | NIL |
| V | NIL | 0% | 13.25% | 3.25% |
| Z | NIL | 0% | 3.25% | 3.25% |
How National Insurance Rates in the UK are Changing
In the meantime, employee and employer National Insurance contributions rates will both ‘temporarily’ increase by 1.25 percent starting in April 2023. However, this rise is projected to persist until 2024, after which the additional tax will be collected separately as part of a Health and Social Care charge. Nevertheless, the National insurance rates will return to their levels in 2021. In other words, you’ll still have to pay the extra 1.25 percent in 2024, but it won’t be covered by National Insurance.
However, the government’s decision in September 2021 is to help support the NHS and close the gap in social care spending. Likewise, these improvements to National Insurance go hand in hand with a 1.25 percent rise in tax dividend payments.
Regardless, this may cause some disruption for small enterprises that handle their taxes, payroll, and payments. Meanwhile, it might be a good idea to integrate custom payment software that makes transactions and calculations a little bit smoother for you and your business. And also to make the money management process a little bit easier.
At the same time, the impact on low-wage and self-employed people, as well as small firms, has been hotly debated. As a result of the changes, recruiting new employees may become more expensive. This is a result of every new hire indicating another percentage of income that will never hit the bank.
Conclusion
Employer National Insurance helps you increase your right to certain benefits, such as the State Pension and Maternity Allowance, depending on whether you are employed or self-employed. Generally, It functions as a kind of social security, and paying NI contributions entitles workers and their families to certain government benefits.
National Insurance FAQs
Do I have to pay employers National Insurance?
Generally, all employers must pay national insurance, and it is illegal to deduct this from a worker’s income. That is one reason why compliant umbrella firms always ensure that their employees understand the difference between the assignment rate and their gross pay.
Can you opt out of paying National Insurance?
Can I opt out of National Insurance? Basically, you cannot opt-out if you are employed or self-employed, are aged 16 or over, and earn above the minimum threshold. If you are employed, your contributions will automatically be deducted from your take-home pay, therefore, opting out is not possible anyway.
What happens if I do not pay National Insurance?
You will be penalized accordingly by HM Revenue and Customs (HMRC) for not making payments towards monthly, quarterly, or annual PAYE UK taxes, Class 1 National Insurance contributions (NICs), the Construction Industry Scheme (CIS), or student loans.
Can you claim back National Insurance?
Certainly, if you overpay NIC or pay NIC incorrectly, you can claim a refund. You cannot claim a refund of NIC simply because you stop working or do not work for the whole tax year.
