NATIONAL INSURANCE RATES – Complete Guide

What is the national insurance rates?

National Insurance is a system of taxes paid by employees to fund state benefits. National Insurance contributions are deducted automatically from employees’ paycheques or self-employed earnings, and the employer must also pay National insurance for their workers. National insurance can be classed as primary, secondary, the lower earnings limit (or LEL), and the upper earnings limit (or UEL).

• Primary National Insurance Contributions: this applies whether you are employed or self-employed. Two types of National insurance contributions will apply depending on which type of direct National Insurance contribution the person is making, Class 1 for those with profits/income chargeable to Income Tax and Class 4 for those not liable to Income Tax. Primary National Insurance is payable to all employees earning more than £157 per week between the National Insurance thresholds.

• Secondary National Insurance Contributions: are payable by the employer. National Insurance is deducted at source, which means that it should be removed from your pay before it reaches you. Secondary National Insurance paid by employers is payable at 13.8% on earnings above £157 but below £797 per week and 1% on any earnings over £797 up to the upper earnings limit of £41,865.

• Lower earnings limit (or LEL) National Insurance Contributions: When you make less money than your lower threshold or that threshold of Primary Earning, you’ll receive National Insurance ‘credits’. That is, you’ll get some real National Insurance benefits, but you won’t have to contribute National Insurance. The limits are £120 and £184 per week during the period between 2021/22.

• Upper earnings limit (or UEL) National Insurance Contributions: is when an employee with high earnings earns more than the Upper Earnings Limit (£967 per week from 2021 to 2022). It is just that they pay a National Insurance rate. If earnings exceed that upper threshold, an employee will be paid a lower rate of 2%. However, employers still pay the standard rate of National Insurance (13.8%) on the earnings.

National insurance is not a direct tax and does not need to be paid on any income not liable for National Insurance Contributions. National insurance contributions by an employee are deducted via the Pay as You Earn (PAYE) system; National Insurance contributions owed by employers can be deducted from the Employers National Insurance Contributions (ENICs) account.

IS IT IMPORTANT TO PAY A NATIONAL INSURANCE CONTRIBUTION?

National Insurance rates vary in different circumstances, but in most cases, you’ll probably pay National Insurance until the state pension age.

HM Revenue & Customs collects National Insurance from people who work and employers on behalf of their employees. National Insurance isn’t a tax – it goes towards National Insurance benefits such as the state pension, contribution-based Jobseeker’s Allowance, and contribution-based Employment Support Allowance. National Insurance is deducted automatically from your pay by your employer along with income tax, and National insurance contributions are payable even if you’re self-employed or unemployed unless you live in a country that has a National Insurance agreement with the UK.

Whether for a company or an agency, you pay Class 1 National Insurance contributions when you work in the UK. This also includes when you’re self-employed but work for an employer – it’s your employer’s job to pay your National Insurance through your payslips, as well as their employer contributions of 13.8% (15.05% from April 2022).

National Insurance is payable on earnings above £162 per week (£772 per month) and counts towards state benefits and pensions. Different rates and bands depend on your circumstances:

• There’s one flat rate of 12% if you’re employed, which most people pay unless they earn more than £50,000 a year. You stop paying this once you reach the state pension age.
• If you’re self-employed, your contributions will be slightly higher at 13.8%, and you’ll pay the same as employees earning more than £162 a week (you stop paying this once you reach the state pensions age).However, book a free consultation with one of our self-employed accountants who better understand your self-assessment tax return needs.
• If you earn less than £162 a week, you won’t have to pay National Insurance if your employer is registered as an Employer Payroll Scheme with HMRC and has paid their employer contributions.

NATIONAL INSURANCE RATES 2022/23:

For people who earn an income up to £9,568 a year, National Insurance will not apply. Instead, national Insurance contributions at 12% will be charged on earnings between £9,568 and £50,270 a year. Earnings above the National Insurance threshold of £50,270 a year will be charged National Insurance at 2%. There is no change from the current National Insurance rates.

Example:

NATIONAL INSURANCE RATES FOR 2022-23 WILL BE AS FOLLOWS:

The National Insurance rates will rise by 1.25% point in 2022-23. This means those who pay National Insurance contributions will pay 13.25% and 3.25% on their income. In addition, national Insurance Class 4 rates will increase to 10.25% and 3.25%.

The rates will rise because the government decided to increase National Insurance rates with average earnings growth. National Insurance contributions are generally linked to inflation or average earnings but can be changed by the government for short periods if warranted. The last National Insurance rate rise was in 2016-17, and this change will take effect on April 6, 2022, and April 6, 2023.

Employees and employers’ class National Insurance contributions as an expense like any other business cost, so these rises will impact profits. However, some employers use opt-out schemes such as salary sacrifice arrangements which they may choose to review, taking the National insurance increases into account. National Insurance contributions paid by employees will also increase, but this is offset for many workers by the National Living Wage raised in April 2019 to £8.21 per hour.

THE MAIN CONTRIBUTORS FOR CLASS 1 NATIONAL INSURANCE ARE:

When you’re employed, you begin making payments for National Insurance when you earn more than £184 per week (2021 to 2022).

In addition, the National Insurance rate that you pay is contingent on your earnings:

• 12% of your weekly income from £184 and £967 (2021 to 2022)
• 2% of your weekly earnings, which are more than £967.

If, for instance, you earn £1,000 per week, you’re bound to pay no tax for the first week’s earnings of £184. After that, however, you are required to pay the 12% (£93.96) on the following earnings of £783 and 2% (£0.66) for the following £33.

From April 6, 2022, the NICs of class 1 will increase temporarily by 1.25%.

Employers must register for Pay as You Earn (PAYE) for each employee to calculate their Income Tax and National Insurance liability. Payroll software can simplify this process by collecting all earnings data, generating forms P45, P60 and providing year-end reports. Payroll services can also assist with Pay-As-You-Earn (PAYE) Payroll Returns and National Insurance payments, as well as helping to make sure your employees are legally paid the National Minimum Wage.

THE MAIN CONTRIBUTORS FOR CLASS 2 NATIONAL INSURANCE ARE:

For self-employed individuals, you might be eligible to pay Class 2 contributions. Class 2 National Insurance contributions are set at a flat weekly rate of £3.05 per week from 2020 and 2021 and 2021-2022.

You’ll have to pay them for each week or week of self-employment during an income tax year. This applies if your earnings during the whole tax period exceed £6,515 (the Small Profits Threshold) (or higher in 2020, 2021, and 2021 to 2022.

The payment of class 2 contributions is an option for self-employed individuals with a profit more petite than the Small Profits Threshold. Contributing Class 2 National Insurance contributions, even if your earnings are lower, will assist you in building contributory entitlements to benefits. It is not a common subject, but if you employ an accountant to prepare your accounts or assist you in completing your tax return, they can offer some suggestions on this.

THE MAIN CONTRIBUTORS FOR CLASS 3 NATIONAL INSURANCE ARE:

• Employees pay 1% on monthly earnings between £162 and their Lower Pay Limit (£892 per week / £4636 per month). After that, they pay 2%.

However, employees will not be liable to make these payments. If you’re employed but work abroad for more than one calendar month in the tax year, you must register for this class. This can happen without your employer’s involvement. If there’s no return submitted for this period, then Pay as You Earn penalties will be due.

THE MAIN CONTRIBUTORS FOR CLASS 4 NATIONAL INSURANCE ARE:

If you’re self-employed and earn more than £9,568 by 2021-22 and £9,500 in 2020-21, you’ll be required to pay the Class 4 National Insurance contributions.

If you’re above this limit, you’ll be charged 9% on the profits made between £9,556 to £50,270 by 2021-22 and £9,500 to £50,000 in 2020-21.

WHEN DO YOU HAVE TO PAY NATIONAL INSURANCE CONTRIBUTIONS?

Suppose you are paid via the pay As You Earn (PAYE) system. In that case, National Insurance contributions will be automatically deducted from your earnings, and you don’t have to perform any action.

This is the case for each payment period, depending on the frequency of receiving your salary. However, it could be weekly, monthly, and even different times of the day.

If you earn more than you make in a single month, you’ll need to be responsible for paying National Insurance. However, you won’t be eligible to claim the additional amount regardless of whether your earnings are lower in the rest during the financial year.

If you are self-employed, then your National Insurance contributions will be calculated based on the information provided on your Self-Assessment tax return.

NATIONAL INSURANCE – DEADLINES AND PENALTIES

NATIONAL INSURANCE DEADLINES:

If the balance payable is greater than £1,500 per month, the balance is due on the 22nd of each month. If the payment is made by electronic means, 19 of each month is the due date. However, if the balance payable is less than £1,500 per month, the balance is due on the 22 of the quarter. If the payment is made by electronic means, 19 of each quarter is the due date.

Quarter dates are as follows:

• July 5 – balance due by July 22.
• October 5 – balance due by October 22.
• January 5 – balance due by January 22.
• April 5 – balance to be paid by April 22.

NATIONAL INSURANCE PENALTIES:

The filing of individual contributions, employer contributions, and self-employed contributions are all penalties for filing them late. However, only late filing of the Individual’s contribution will be penalised when filing for Pension Credit.

It should be noted that these penalties will not apply if you can prove to HMRC that you have a reasonable excuse for filing the contribution later than has been requested by HMRC. In addition, note that there are different rules regarding filing deadlines for foreign nationals (foreign nationals who work in the United Kingdom).

• LATE FILING (FINES) APPLICABLE TO INDIVIDUAL’S CONTRIBUTION (CLASS 1 NICs), EMPLOYER’S CONTRIBUTION OR SELF-EMPLOYED CONTRIBUTION (CLASS 2 NICS):

A fine will be imposed if the filing of contributions for a certain period is done after the filing deadline. This fine may vary from £100 to £1,500 or more per day up until the date on which HMRC requested filing. For example, if a filing has been requested via paper forms, fines will start accruing 20 days after the filing deadline. In case filing has been requested online, fines will begin accruing 30 days after the filing deadline. There can, however, still be a maximum of a 3-month extension given before penalties are applied.

• LATE FILING (PENALTIES) APPLICABLE TO PENSION CREDIT CLAIMS LATE:

The filing deadlines for Pension Credits have also been extended from 3 months to six months. However, filing a claim for Pension Credit is a slightly different case as filing a claim on the wrong basis will lead to a fine of up to 100%. Filing on the wrong basis means that filing was done later than requested by HMRC, and at the same time, the filing was done not under your actual status. If this situation does arise, you must contact HMRC immediately to help you file correctly, avoiding fines. In cases where filing was not done late but if the filing has been made using an incorrect status.

Our HMRC enquiry team is an expert in resolving HMRC enquiries and tax investigations for our clients. We can help you respond to any general HMRC queries, ensuring that your matter will be handled with care and consideration while still meeting all its requirements.

The government has announced that, from 2021 onwards, there will be penalties for people who pay their self-assessment taxes late. Penalties will apply to any outstanding amounts after six months, and then an additional 5% of the unpaid amounts could be charged every six months after that. So, after 12 months, the total due amount could increase by a further 5%.

Penalties are not new; employers have long faced penalties for paying National Insurance contributions late. Penalties can be up to 100% of the amount underpaid with a £100 minimum per penalty. If you currently work in HR or payroll, you’ll understand how important it is to ensure that your employer pays on time – mitigating against penalties is part of your job. However, penalties aren’t trivial either.

If the government prompts you to disclose an error, there is no penalty. However, if HMRC catches any carelessness or deliberate mistakes that did not reveal, then they will charge penalties according to the type of behaviour and whether your error was intentional:

• Appropriate care has No Penalties whatsoever.
• Inconsiderate behaviour with untriggered exposure 0% to 30% and with triggered exposure 15% to 30%.
• Premeditated behaviour with untriggered exposure 20% to 70% and with triggered exposure 35% to 70%.
• Deliberate Misrepresentation with untriggered exposure 30% to 100% and 50% to 100% with triggered exposure.

Conclusion

National Insurance rates are essential for everyone in the UK. This guide has helped understand how these rates work, especially for employees, self-employed folks, and business owners.
We’ve learned about the different types of National Insurance payments and how the rates change depending on your earnings. It’s crucial to stay updated on any changes in the rules so you can plan your money correctly.
Remember, National Insurance isn’t just about paying money – it helps fund important things like pensions and healthcare. This guide has shown us how to make wise choices with our finances, make the most out of the system, and contribute to our society’s well-being.

Book a free consultation now with an expert