The Budget 2014 Debugged (Part 4) - National Insurance Contributions

We’re continuing with our breakdown of The Budget 2014 report; this week we’re focusing on all the key information about National Insurance Contributions and the benefits associated with it.

Who pays National Insurance?

National Insurance Contributions (NICs) are only paid if you are an employee or self-employed and you’re:

·      Aged 16 or over

·      Earning more than £153 per week

·      Self employed and making a profit over £5,885 a year (unless you get an exception)

The exact amount of your NIC also depends on how much you earn and whether or not you are employed or self-employed. Furthermore, if you’re employed, you will stop paying National Insurance contributions as soon as you reach State Pension age.

State Pensions

There have been multiple changes to the State Pension age, as demonstrated below:

Date of Birth Bracket	State Pension Age	Phase Period
6th April 1950 to 5th December 1953	65	April 2010 to November 2018
6th December 1953 to 5th April 1960	66	November 2018 to September 2020
After 5th April 1960	67	May 2026 to February 2028

How much National Insurance do you pay?

The amount and type of NICs depends on how much you earn, and also whether you’re employed or self employed. The grid below is based on the 2014-2015 tax year for those who are employed.

Wage Bracket (per week)	National Insurance Contribution
£153 - £805	12% of earnings
More than £805	2% of earnings in excess

All contributions are deducted from your wages automatically by your employer.

If you are self-employed, you stop paying:

·      A – Class 2 contributions as soon as you reach State Pension age (or up to 4 months after this to pay off any contributions you owe)

·      B – Class 4 contributions from the start of the tax year after the one in which you reach State Pension age.

Class 2 National Insurance contributions are paid at a flat rate of £2.75 a week. Class 4 National Insurance contributions are paid as a percentage of your annual taxable profits - 9% on profits between £7,956 and £41,865, and a further 2% on profits over that amount.

If your profits are expected to be less than £5,885 you may not have to pay Class 2 National Insurance contributions.

Your Class 2 National Insurance contributions payments are due on 31 January and 31 July, the same time as your Self Assessment tax bill. You pay Class 2 National Insurance contributions either monthly or six monthly by Direct Debit - follow the first link below for more information about payment dates.

Additionally, you must contact HMRC immediately if there is a change in circumstances, for example if your address and/or name change. This also applies if you start or stop self-employment.

National Insurance Numbers

Your National Insurance number is your own personal account number, which makes sure you’re contributions are properly recorded on your account. It also acts as a reference number for the entire social security system.

Every National Insurance number is different. It's made up of letters and numbers like this:

QQ 12 34 56 A.

(Please note that this National Insurance number is just an example and should not be used as your own number).

Your National Insurance number never changes even if you go abroad, marry, register as a civil partner, change your name, etc.

Your entitlement to many state benefits depends on your National Insurance contribution record (see the section below 'State benefits that depend on National Insurance contributions').

Several companies use National Insurance numbers and you should give them to:

·       HM Revenue & Customs

·       Your employer

·       Department for Work and Pensions (which includes Jobcentre Plus and Pension, Disability and Carers Service), if you claim state benefits

·       your local council, if you claim Housing Benefit

·       the Student Loans Company, if you apply for a student loan

You also have to give your National Insurance number if you open an Individual Savings Account (ISA) - follow the first link below for more information.

It's very important you keep your number safe and don't give it to anyone who does not need it. This will help prevent identity fraud - follow the second link below to find out more about protecting your identity.