National Insurance

National Insurance Contributions (NIC) are generally seen as an additional tax deducted at source as part of PAYE but if you are self employed you pay different rates.

If you want the minimum pension when you retire you'll also need to ensure you pay in the right amounts over your working life.

When Do You Pay NI Contributions ?

NI is paid when you have income over a certain amount and this is called the earnings threshold and these change at least once a year when the budget is announced by the Chancellor. By paying national insurance an individual builds up a contributions record determines that person's entitlement to social security benefits including NHS treatment and what level of state pension is available upon retirement.

The type of contribution and rate you pay depends on your earnings and whether you are employed under PAYE (pay as you earn) or self employed or a director of a company. You do not pay national insurance once you reach statutory retirement age which is currently 65 for men and 60 for women (although this is being increased to 65 for women between 2010 and 2020).

The benefits that you are entitled to depending on how much you contribute in NI over your working life affects the following social security items: Contribution based Jobseeker's Allowance (Class 1 NICs only), Incapacity Benefit (if you can't work for long periods due to illness or injury), Contribution based Employment and Support Allowance (ESA), State Pension, additional State Pension (Class 1 NICs only), Widowed Parents' Allowance, Bereavement Allowance and Bereavement Payment.

Basic National Insurance Rates

For the current 2009/ 10 tax year a person will pay the following:

• If you're employed by a company and pay tax under PAYE you will pay 11% of your salary from £110 a week (the lower earnings limit) to £844 per week (the upper earnings limit)
• Over the uppers earnings limit you pay 1% tax as national insurance contributions
• Both of the above scenarios are classed as Class 1 NICs

The upper earnings limit has been increased dramatically higher than inflation in recent years by the Labour Government in an attempt to attract additional taxes from higher earners.

• If you are self employed you pay NI as class 2 NICs at a flat rate of £2.40 per week
• You also pay 8% flat rate on annual taxable profits between £5,715 and £43,875 as class 4 NICs
• For earnings below £5,715 you may not have to pay any NI by applying for the Small Earnings Exception (SEE) scheme using another government form in this case CF10

National Insurance - rates and allowances

£ earnings per week	2007-08	2008-09	2009-10
Lower earnings limit, primary Class 1	£87	£90	£95
Upper earnings limit, primary Class 1	£670	£770	£844
Upper accruals point	N/A	N/A	£770
Primary threshold	£100	£105	£110
Secondary threshold	£100	£105	£110
Employees’ primary Class 1 rate between primary threshold and upper earnings limit	11%	11%	11%
Employees’ primary Class 1 rate above upper earnings limit	1%	1%	1%
Employees’ contracted-out rebate	1.6%	1.6%	1.6%
Married women’s reduced rate between primary threshold and upper earnings limit	4.85%	4.85%	4.85%
Married women’s rate above upper earnings limit	1%	1%	1%
Employers’ secondary Class 1 rate above secondary threshold	12.8%	12.8%	12.8%
Employers’ contracted-out rebate, salary-related schemes	3.7%	3.7%	3.7%
Employers’ contracted-out rebate, money-purchase schemes	1.4%	1.4%	1.4%
Class 2 rate	£2.20	£2.30	£2.40
Class 2 small earnings exception	£4,635 per year	£4,825 per year	£5,075 per year
Special Class 2 rate for share fishermen	£2.85	£2.95	£3.05
Special Class 2 rate for volunteer development workers	£4.35	£4.50	£4.75
Class 3 rate	£7.80	£8.10	£12.05
Class 4 lower profits limit	£5,225 per year	£5, 435 per year	£5, 715 per year
Class 4 upper profits limit	£34,840 per year	£40, 040 per year	£43, 875 per year
Class 4 rate between lower profits limit and upper profits limit	8%	8%	8%
Class 4 rate above upper profits limit	1%	1%	1%

Class 1A NICs payable in July 2008 for benefits provided in the 2007-08 tax year are due at 12.8%

The most up to date information is found on the HMRC site here

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