Often misunderstood, National Insurance is a huge and essential part of the UK economy. Usually paid alongside Income Tax, National Insurance Contributions (NIC) make up a large portion of workers’ taxes.
The amount you pay will depend on your employment situation and income. Contributions additionally have a direct impact on the eligibility of some benefits as well as determining how much State Pension you can get once reaching the national retirement age.
In this post, we’ll look at the National Insurance rules for the 2023/2024 tax year. If you have any questions, don’t hesitate to leave a comment below.
What is National Insurance?
National Insurance, in the simplest sense, is a contribution you make from your income (e.g., your job), which is used to pay for State Pensions and certain benefits across the whole of the UK. It acts as an ‘insurance’ payment of sorts, to ensure you get the support you need, when you need it.
Here are a few examples of what NICs pay towards in the UK:
- Your State Pension
- Contribution-based Jobseekers Allowance
- Contribution-based Employment and Support Allowance
- Maternity Allowance
- Bereavement Support Payment
By paying National Insurance, you become eligible, over time, for certain benefits, as well as varying rates of the State Pension.
National Insurance is only payable (unlike Income Tax) by those over the age of 16 and those under the State Pension age (currently 66 years old).
What is a National Insurance Number?
A National Insurance Number is essentially your unique identity for all things governmental. From all things tax related, to investment accounts and allowances, to benefits and pensions.
National Insurance Numbers are built up of: two letters, six numbers, followed by one letter. Here’s an example:
PQ 12 34 22 B
Each and every UK Citizen receives a National Insurance Number once they reach 16 years old.
Previously, National Insurance Cards were issued to each individua. However, this has now transitioned into a typed letter instead. It’s also possible to find your National Insurance number online via Government Gateway.
Non-UK citizens who wish to work in the UK must independently apply for a National Insurance Number.
The Four National Insurance “Classes”
There are four types (or ‘classes’) of National Insurance. Depending on how you work (e.g., employed under PAYE, self-employed, etc), you may pay one or more classes of NIC.
The four classes are:
| Name | Description |
|---|---|
| Class 1* | Contributions are made by both employees AND employers (usually via PAYE) |
| Class 2 | Contributions are paid by the self-employed, at a ‘flat’ weekly rate |
| Class 3 | Contributions are voluntary, allowing people to ‘fill in’ gaps in their NI record |
| Class 4 | Contributions are made by the self-employed, based on the profits earned |
Class 1 Contributions (Employees & Employers)
Class 1 contributions, paid by both employees and employers, are the most common. Here, we’ll simply focus on the employee. (If you’d like me to add-in some information for employers too, comment with the request below and I’ll add it in!)
Class 1 contributions are paid from any employment income above a certain amount, known as the “Primary Threshold”. Think of this as similar to the tax-free Personal Allowance for Income Tax, where you won’t pay NIC up to a specific income.
Here’s a table to illustrate the rate you’ll pay based on your income:
| Earnings | 6th April 2023 to 5th April 2024 |
|---|---|
| Below £12,570 | 0.00% |
| £12,570 to £50,270 | 12.00% |
| Above £50,270* | 2.00% |
Thankfully, 2023/2024 is a little simpler than last year, thanks to the removal of the planned 1.25% levy. It also helped that no National Insurance changes were announced in the 2023 Spring Budget.
Class 2 Contributions (Self-Employed)
If you are self-employed, you’re required to pay Class 2 contributions once you make profits above a certain threshold. This is known as the “Lower Profits Limit”. For 2023/2024, this is £12,570 per year.
If your profits are below the Lower Profits Limit but above what is known as the “Small Profits Threshold” (£6,725 in 2023/2024), you do not need to pay Class 2 contributions. However, you will still be treated as if you are paying these contributions. This gives you the same benefits as if you were paying NIC, i.e., state pension entitlement, etc.
If you earn below the Small Profits Threshold, there is the option to voluntarily pay Class 2 contributions to ensure no gaps are present in your record.
For 2023/2024, Class 2 contributions are:
- £3.45 per week
- £179.40 per year
Class 3 Contributions (Voluntary)
Class 3 contributions are entirely voluntary and provide a useful way to avoid – or fill – gaps in your National Insurance record.
Currently, to receive the Full State Pension you must have 35 ‘qualifying years’ of paid National Insurance contributions. Voluntarily paying Class 3 contributions following times of unemployment – for whatever reason – can ensure you reach this goal as early as possible. Thus boosting your eligibility to receive the full State Pension and other state benefits.
For 2023/2024, Class 3 rates are:
- £17.45 per week
- £75.62 per month
- £907.40 per year
You can usually only pay voluntary contributions for the past 6 years and the deadline for each year is the 5th April. Therefore, you have until 5th April 2024 to fill in any gaps for the 2017/2018 tax year onwards.
Class 4 Contributions (Self-Employed)
If you are self-employed, you’re required to pay Class 4 contributions on the profit made above the Lower Profits Limit. For the 2023/2024 tax year, this is £12,570.
Class 4 contributions are not related to benefits or the State Pension in any way. Instead, these contributions act as more of a ‘tax’ on profits.
The rates for 2023/2024 are:
| Earnings | 6th April 2023 to 5th April 2024 |
|---|---|
| Below £12.570 | 0% |
| £12.570 to £50,270 | 9.73% |
| Above £50,270 | 2.73% |
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