You pay National Insurance contributions to build up your entitlement to certain state benefits, including the State Pension. The contributions you pay depend on how much you earn and whether you’re employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age.
IMPORTANT FACTS – National Insurance Contributions – if you are employed (class 1)
You will pay a lower rate of National Insurance contributions if you are a member of your employer’s ‘contracted-out’ pension scheme.
Lower Earnings Limit (£120 a week) – if you earn more than this then you can still build up entitlement to a State Pension and certain other benefits.
Employers deduct National Insurance contributions from your wages through the PAYE system.
Your employer also pays Employer National Insurance contributions based on your earnings and on any benefits you get with your job, for example a company car.
HMRC keeps track of contributions through your National Insurance number. This is unique to you and will remain the same throughout your life.
If you are self-employed the National Insurance contributions you make are slightly different, you must make both:
- Class 2 and Class 4 National Insurance contributions.
You have to fill in a Self-Assessment tax return each year so that HMRC can work out how much Income Tax and Class 4 National Insurance is due.
Voluntary National Insurance contributions
If a person has gaps in their National Insurance contributions record, then entitlement to the basic State Pension and certain bereavement benefits could be affected. They may want to consider filling in the gaps by paying voluntary National Insurance contributions. It isn’t always right or beneficial to pay voluntary contributions. It depends on several things, including how much the person has contributed already and the date they reach State Pension age.