National Insurance Rates – Your Way Around the Maze

All rates in this article are for 2024/25.

NIC for Employees

For employees, Class 1 National Insurance (NI) primary contributions are deducted from their salary each month as part of the PAYE system. They pay earnings between £146 and £817 per week at 8% and then 2% on any earnings above this.

The amount of NIC paid by workers is influenced by whether you are contracting out of SERPS or S2P known as the State Second Pension Scheme. If the employee has contracted out of SERPS and into a salary-related scheme.

Then at the basic level, the NIC rates were reduced by 1.4% for the employee and 3.4% for the employer.

But, if an employee contracts out of SERPS into a personal pension. The full NI fee will be made so the NICO will pay the insurance provider a refund afterward.

NICs for Employers

Class 1 secondary contributions are paid by the employer at a rate of 13.8%. On all the employee’s incomes above £144 per week. The contributions must be paid over to HMRC together with the primary contributions deducted from the employees’ salaries, each by the 19th of each month or by the 22nd if paying electronically.

Employers with small payrolls can elect to pay quarterly.

Class 1A Contributions made by the employer on certain types of workplace benefits. At the rate of 13.8% on the value of the benefit provided. Class 1A contributions are paid once a year by 6 July after the tax year-end.

NIC Holiday

Some businesses will be exempt from paying the employer’s class 1 NICs for 12 months for up to 10 employees, capped at £5,000 per employee. The scheme was started in September 2010 but applied to new businesses set up on and after 22 June 2010.

It was only applied in Scotland, Wales, Northern Ireland, the North of England, Yorkshire, the Midlands, and the southwest regions. Some businesses, such as those run under IR35 or Controlled Service Business excluded. Thus, businesses in grant-supported sectors such as agriculture, fisheries, and coal.

Self Employment NIC

1. Class 2 contributions, amount to £3.45 per week and are due if you earn more than £6,725 per year. Payment is due on 31 July and 31 Jan, the same as the self-assessment tax bill, although payment can be spread on a monthly direct debit. They provide only a very basic cover for state benefits. You get the basic retirement pension but not the earnings-related pension. You may also claim incapacity benefits but not industrial injuries benefit.

2. Class 4 contributions on the taxable profit you make between £12,570 and £50,270 per annum. The rate is 6% of that profit and 2% above this.

The good news is that this is less than you would pay as an employee where the rate is usually 12% at these levels and 2% after that.

Voluntary National Insurance

Class 3 National Insurance is a voluntary alternative to the £17.45 a week flat-rate premiums. You will pay individuals to keep their national federal pension plan records up. Thus, some other benefits when they haven’t paid enough of any of the other forms of contribution.

Class 2 Contributions can also be charged. While posted overseas to secure access to UK benefits.

Summary

• Class 1 primary contributions are paid by employees;
• Class 1 secondary contributions are payable by employers
• Class 1A pay by employers;
• Class 2 pays the self-employed, and employees posted overseas;
• Class 3 is a voluntary contribution to make up for any deficits;
• Class 4 pays the self-employed if they earn enough. But does not provide any entitlement to state benefits.

How We Can Help You

National Insurance can be a complex area and HM Revenue & Customs have wide powers. We can assist you with compliance and taking advantage of NIC planning opportunities.

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