There are various classes of National Insurance (NI) – this is how they work. All figures are 2024/25 rates.
Class 1 – This is the NI paid by employees and employers – in essence, if you are employed, the NI deducted from your wages.
Employees NI (Primary Class 1 NI) is deducted from employees wages, at 8% on earnings over £242 a week and at 2% on earnings over £967 a week (2024/25 rates).
Secondary Class 1 NI is paid by employers, and thus sometimes called a “tax on jobs” – the rate is 13.8% on weekly pay over £175 (2024/25 rates)
A couple of tips:
- If you earn between £123 and £242/w a week, you pay Class 1 at 0% – this means the income counts for benefit and pension purposes – which is a useful planning point
- These rules apply if you are a Company Director – its often best to take a smaller salary and maximise dividend instead to save NI, but take advice on this.
Class 2 – This is a weekly charge of £3.45 on Self Employed profits.
- From 2024/25 onward it is only due if your business profits are less than £6,725 and you elect to pay it to get credit for State Pension. if you do elect to pay it, it is paid annually via the Self Assessment.
- If your profits are over £6,725 you get a Class 2 NI credit meaning no payment is due but contributions are recorded for State Pension.
Class 4 – This is an annual variable charge on business profits, compared to the fixed Class 2.
Class 4 is due at 6% on profits over £12,570 a year, and 2% on profits over £50,250 (2024/25 rates).
Class 3 NI – This is a voluntary NI payment for those not earning enough to pay NI and who want to protect benefit and pension rights – see HMRCs guide to Voluntary NI. Also our Guide to Voluntary NI for Yoga Teachers
It is worth considering a voluntary NI contribution if you haven’t paid enough NI in any given tax year to get a credit toward State Pension – again see HMRCs guide. If you are Self Employed then, at present, the easiest solution is to pay Class 2 voluntarily on your Self Assessment return by opting to pay Voluntary Class 2 NI as it is considerably cheaper than Class 3.
If you are employed then the minimum earnings to make a tax year into a Qualifying Year for State Pension is 52 x weekly Lower Earnings Limit (a technical term) which is £123 p/w i.e. £6,396 (2023/24 rates)
National Insurance Credits – in certain circumstances you can get credits for NI, the most common of these is if you are registered for Child Benefit even if you don’t receive it because you or your partner earns to much – see HMRCs guide to National Insurance Credits
Voluntary NI – Class 2 or 3 – see our separate guide to Voluntary NI
State Pension – this is more complex than desirable, but is based around NI contributions
Men born after 6 April 1951 and women born after 6 April 1953 potentially qualify for the New State Pension – the qualifying rules are broadly:
- If you start paying NI after April 2016 then its a minimum of 10 years for any pension, and 35 years for a full pension, again payment or credits.
- People who started paying NI before April 2016, but were born after 1951 (men)/1953 (women) will get the higher of either
- what they would have been entitled to under the previous Basic State Pension
- what they would get if the rules or the New State Pension has been in place at the start of their working life. The full rate of New State Pension £221.20 (2024/25 rates) a week.
The pension amounts given may be reduced if your contributions record was to short or, for Basic State Pension, if you were contracted out.
The Governments Future Pension Centre can help with an estimate of your pension.
If You Are Over State Retirement Age – you stop paying NI, however any employer has to carry on paying Secondary Class 1 Contributions all the time you continue working.
Annual Maximums – there are rules for annual maximum NI if you have multiple income sources. These are quite complex, and advice is needed. HMRCs NI Manual covers this.
