An overview of National Insurance (NI)
November 19, 2015
Nobody likes paying tax, but if there is one form of it that could bear the label “political hot potato”, it’s (NI). Why? Because its original intended use was to fund certain welfare benefit systems such as the National Health Service and the state pension.
NI rates may have continued to go up and up, but being realistic, it’s unlikely all of the benefits such as a state pension will be around by the time you’re thinking of retiring. In short, it’s become just another tax which is deducted from your earnings.
NI is generally payable no later than the 19th of each month, unless payments due are very low, in which case you may be able to pay quarterly.
Here’s a brief overview of what you will have to pay:
This will apply if you run a limited company and take a salary as an employee. It’s the most common form of NI and is calculated as a percentage of your wages, up to an upper earnings limit. The primary contribution is paid by you the employee, the secondary by your employer (your company). For 2008/9, the employee rate is 11 per cent on earnings between £105 and £770 a week, and 1 per cent above £770 per week. Keep an eye on Bytestart for rate changes.
This is the rate paid by an employer if as an employee you enjoy certain job benefits, such as a company car. As an “employer” with your own limited company, your business is expected to contribute 12.8% on earnings above £105 per week (2008/9).
The compulsory rate paid by self-employed people. However, you are exempt should your wages be below a certain level. This applies to sole traders and those in a partnership from the first day of self-employment. These contributions are currently £2.30 per week (2008/9).
Voluntary Contributions. Pay these to help fill gaps left in your NI contribution record, such as periods of unemployment. As is done with pensions, Her Majesty’s Revenue and Customs (HMRC) may contact you to make you aware of any gaps.
Like Class 2, but only for the self-employed with profits over a certain amount each year. This will apply to sole traders and those in a partnership earning about this level. The current rate paid is 8% of all earnings between £5,435 and £40,040 per year, and 1 per cent above £40,040 (2008/9).