National Insurance Rates

National Insurance originates from The National Insurance Act of 1911 and was then later expanded upon in 1948 with the arrival of the ‘welfare state’ although it has had several amendments since then. It was initially implemented to protect people from times of hardship.

Currently, If you earn over £242 per week from your job or are self employed and make a profit of more than £12,570 a year then you will be liable to pay national insurance contributions. These contributions are not optional and you will see on your payslip how much is being deducted from your wages if you get paid via PAYE. The amount of contributions you pay are dependent upon your wages so if your wages fluctuate, then so will your contributions. If you are self employed then the rate of your national insurance contributionsNa will be finalised with your self assessment tax return that you submit.

National Insurance contributions help build your entitlement for certain benefits such as the state pension when you reach retirement age and other social security benefits that rely on you having paid enough contributions over time.

There are four different classes of national insurance - these are Classes 1-4. Class 1 is paid by both employers and employees while Class 2 contributions are paid if you are self employed although the good news if you fall into this category is that as from this April 2024, you will no longer be required to pay Class 2 contributions. This is predicted to affect around two million of those who are self-employed in the UK. Class 3 is voluntary with the aim of filling in any gaps you may have accrued in your National Insurance record and Class 4 is paid by the self-employed if you earn over a certain limit. The different Classes may be confusing to some so if you are unsure it is always best to seek professional guidance and advice, especially for those who are self employed.

However, as from last week on January 6th, the national insurance rates were cut by 2%, from 12% to 10%  which may not appear to be much yet it will make a significant difference to many workers in the UK, (around 27 million!) and the impact will be seen in January’s wages. A few examples are as follows. A person who earns a salary of £25,000 each year will be £20.72 better off each month while someone earning £40,000 will see an extra £45.72 each month and with the cost of living crisis still evident, it will be a welcome post Christmas gift for many.