Every person in the UK is entitled to pay national insurance to the HMRC at the end of a financial year while filing a tax return. The amount of national insurance paid by a person depends on employment status and annual income. For this purpose, the HMRC has defined classes for different socio-economic classes. This article gives details of each class of national insurance in the UK.
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What are the Different Classes of National Insurance?
National insurance contributions are a type of tax charged on employers, employees, and the self-employed that is certain to benefit them in the future. The benefits given by the UK government in return for national insurance contributions are State pension, maternity allowance, bereavement support payment, etc. The level of provision of the SE facilities depends upon the employment statistics and national insurance laws defined by HMRC. In the UK, employers are also entitled to pay national insurance on behalf of their employees through a “Pay as You Earn” system.
National Insurance Number
The national insurance ID is assigned to each person above the age of 18 years. The number is posted to the address given by the HMRC. The format of the national insurance number is two capital letters followed by six digits and ending with a capital letter. For example:
AB 12 34 56 C
Classes of National Insurance
The classes of national insurance defined by the HMRC are given below:
1- Class 1 National Insurance
Class 1 national insurance is imposed on employers and employees. The national insurance paid by the employee is known as the primary contribution, while the national insurance paid by the employer is known as the secondary contribution. The primary insurance is automatically deducted from the employee’s salary. There are certain thresholds defined by the HRMC on primary and security thresholds, which are explained below:
i- The Lower Earning Limit (LEL)
If you are earning less than the lower-earning limit, then primary contributions are not deducted from your account, but you are also not entitled to any benefits of the national insurance. The lower earning limit for the year 2024-2025 is £123 per week, £533 per month and £6,396 per year.
ii- The Primary Threshold (PT)
Employees whose earnings reach the primary threshold are entitled to pay national insurance, which is automatically deducted from their salary. The primary threshold rates for the year 2024-2025 are £242 per week, £1,048 per month, and £12,570 per year.
iii- Secondary Threshold (ST)
When the earnings reach the secondary threshold limit, the employers start paying secondary national insurance. The secondary threshold for the year 2024-2025 is £175 per week, £758 per month, and £9,100 per year.
iv- Upper Earnings Limit (UEL)
The upper earning limit is the threshold where a lower rate is paid by the employees. The upper earning limit for the year 2024-205 defined by HMRC is £967 per week, £4,189 per month and £50,270 per year. This is the amount paid by a person under the age of 21.
v- Apprentice Upper Secondary Threshold
This is imposed on the person doing apprenticeships and above the age of 25. The earnings for the years 2024-2025 are £967 per week, £4,189 per month, and £50,270 per year.
Class 1A National Insurance
This national insurance is paid by the employer if certain benefits are provided to employees based on their employment status. The Class 1A NIC is usually a percentage of the monetary equivalent of your employee’s benefit. The Class 1A national insurance rate for the years 2024-2025 is 13.8%.
Class 1B National Insurance
Class 1B national insurance is paid by employers through PAYE. This insurance is paid yearly to cover all tax expenditures and any irregularities in the national insurance. The expenses and employee benefits provided by the company include telephone bills, incentive awards, employee travel & relocation expenses, staff entertainment, personal care expenses, and so on. The National Insurance Class 1B rate for 2024 to 2025 is 13.8%.
Class 2 National Insurance
Class 2 national insurance is paid by the self-employed individual. The limit for class 2 insurance in the years 2024-2025 is £6,725 in yearly profit. A weekly fixed amount of £3.45 is paid through a self-assessment tax return. After the state pension age, the individuals are not entitled to pay class 2 national insurance.
Class 3 National Insurance
Class 3 national insurance is voluntary national insurance paid by persons to fill gaps in their national insurance. The gap could be due to an employee moving outside or earning below the lower earnings limits yearly. To enjoy state benefits of health services and state pensions, this insurance is paid by individuals. The maximum Class 3 national insurance contribution one can make is £17.45 per week.
Class 4 National Insurance
Class 4 national insurance is paid by self-employed individuals. It is the same as class 2 national insurance except for the profit threshold limit, which is £12,570 a year. If you are employed and self-employed at the same time, then your employer will deduct class 1 national insurance, and you will pay the class 4 national insurance through self-assessment to the HMRC. After the state pension age, you will enjoy the benefits without paying national insurance.
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Conclusion
National insurance is the amount paid by every individual in the UK based on their employment status and the amount of yearly income. It is paid by employers, employees, and self-employed individuals. There are different classes defined by the HMRC, such as class 1, 2, 3, and 4 national insurance contributions. Each class has its upper and lower limits; however, after the state pension age, you are not entitled to pay the national insurance.
Disclaimer: All the information provided in this article on classes of national insurance, including all the texts and graphics, is general in nature. It does not intend to disregard any of professional advice.
