national insurance rates and categories

Your Handy Guide to National Insurance Rates and Categories

Contents

Nobody likes paying taxes. We know that they fund a lot of things we need—infrastructure, for example—and some things we hold dear, like the NHS and education, but it’s instinctive to begrudge the payments just a little when they seep out of our pay packet.

National Insurance is a funny one though. Maybe because it’s called a ‘contribution’, or maybe because we see its value on a more personal level, it doesn’t have quite the same negative press.  Perhaps it’s because this is you saving money for future-you and building up your state pension. But it is another form of tax and nearly everyone working in the United Kingdom has to pay it. If you don’t contribute to it, you limit your access to certain benefits and the state pension… so you definitely have to be in it to win it!

What is National Insurance?

National Insurance is a form of social security tax. It’s paid by most workers and employers in the UK. And it’s basically your rainy day fund – it’ll turn into a state pension and benefits if you ever need them.

 It’s mandatory if you’re 16 or over and you’re:

  • An employee earning above £242 a week

or

  • Self-employed and making over £12,570 a year profit.

How much you pay is worked out in a similar way to income tax – it’s calculated on gross earnings (before tax or pension deductions) or profits (earnings minus allowable expenses) above a threshold.

Don’t worry, we’ll get into the nitty gritty of that in a minute!

And before we go on, you need to know that NI means National Insurance and NICs means National Insurance Contributions. Simple!

What does National Insurance pay for?

All the funds collected are used to provide state benefits such as the State Pension, Jobseeker’s Allowance, maternity and paternity allowance and others. It’s also used to top up funding for the NHS.  It basically does a lot of good for the country, but it also does a lot of good for you in the times you need it most.

Who’s exempt from National Insurance?

  • An employee earning between £123 and £242 a week

or

  • Self-employed and your profits are between £6,725 and £12,570 a year.

If there are years when you fall into these non-paying brackets, your contributions are still treated as having been paid to protect your NI record. Which is pretty nice really. And it’s also very important – you need a complete record to qualify for a full state pension or the benefits you may need.

What happens if there are gaps in your National Insurance record?

There may be some periods when you get a gap in your National Insurance record. And that’s not a scenario you’ll want to see. That could be because of a number of different factors. Maybe:

  • You were living or working outside of the UK
  • You’re self-employed and your profits were too low
  • You’re employed but had low earnings
  • You were unemployed but not claiming benefits.

If you can afford to, and if you’re eligible, try to top up your record and pay some voluntary contributions to fill any gaps because you don’t want this to threaten your access to benefits or your pension. And be aware that there’s a 6 year limit on back-filling those gaps.

How long do I pay NI for?

You’ll be glad to hear, there’s an end date to NICs. At state pension age it’s time to stop paying into your NI pot and start drawing from it. Hooray!

All you need to do is to show your employer a proof of age, and your contributions will stop—although you can choose to continue paying if you want to.

What are National Insurance classes?

Now that’s a good question. The amount of NI paid varies depending on the employee’s particular National Insurance category tax status. There are four (and a bit!) classes of National Insurance.

i. Class 1 is paid by employees when they earn more than £242 a week and are under State Pension age. Their employer will also pay Class 1 on earnings over £175 per week.

ii. Class 1A or 1B. This is the ‘and a bit’ part! Class 1A or 1B is paid on employees’ expenses or benefits.

 iii. Class 2 is paid by self-employed people earning profits of more than £12,570 a year, with a rate of £3.45 a week. But you could also pay Class 4 (see below).

iv. Class 3 is what you pay when you’re filling gaps – as we mentioned above. It’s a voluntary top-up to make sure your NI record is in perfect shape.

v. Class 4 is paid by self-employed people earning profits of £12,570 or more a year Class 4 contributions are charged at 9% on profits between £12,570 and £50,270, then at 2% on profits over £50,270.

 

What are category letters all about?

Every employee will be assigned an NI category letter based on their circumstances, and that letter can change over time.

And each letter means something different. Let’s crack that code!

Category letter Employee group
A Pretty much everyone falls into this category!
B B is for married women and widows entitled to pay reduced NI
C Employees over the State Pension age fall in this one
H Apprentices under 25 will meet different criteria for NICs
J Employees who can defer NI because they’re already paying it in another job
M Employees under 21 – again, different rules apply
V Employees who are working in their first job since leaving the armed forces (veterans) will pay at different rates
Z Employees under 21 who can defer NI because they’re already paying it in another job – basically J+M!

But then there’s a whole load of category letters for employees who work in freeports (freeports might more commonly be known as tax havens – places like the Isle of Man).

Category letter Employee group
F All employees who work in freeports, (apart from people who fall into codes I, L, and S!)
I Married women and widows who work in freeports and are entitled to pay reduced NI get their very own NI letter category
L Employees who work in freeports and can defer NI because they’re already paying it in another job are another one to watch out for
S Employees who work in freeports and are over the State Pension age.

But we’re not quite done yet… There’s also category letter X. Which is as X as it sounds.  This one is for employees who don’t have to pay NI, for example because they’re under 16. And don’t even get us started on foreign-going mariners and deep-sea fishermen (or women!) because they have a whole different NI plan… we could be here all night!

Categories and NI contributions

Those handy people over at GOV UK have created a cheat sheet so you’re prepared for the reckoning when it hits! You can check your category letter against your monthly income to see what percentage of your pay should be going out in NI contributions in the tax year 6 April 2023 to 5 April 2024:

Category letter £123 to £242 (£533 to £1,048 a month) £242.01 to £967 (£1,048.01 to £4,189 a month) Over £967 a week (£4,189 a month)
A 0% 10% 2%
B 0% 5.85% 2%
C N/A N/A N/A
F 0% 10% 2%
H 0% 10% 2%
I 0% 5.85% 2%
J 0% 2% 2%
L 0% 2% 2%
M 0% 10% 2%
S N/A N/A N/A
V 0% 10% 2%
Z 0% 2% 2%

And it should work something like this…

If you’re a category A person who earns £1,000 in a week you can expect to pay:

  • Nothing on the first £242
  • 10% on your earnings between £242.01 and £967
  • 2% on the remaining earnings above £967

What about employer contributions?

What’s doubly nice about NI contributions is that you’re not alone. Your employer is also popping money away for your rainy day.  And once again, those GOV UK bods can show us how this works for tax year 6 April 2023 to 5 April 2024:

Category letter £123 to £175 (£533 to £758 a month) £175.01 to £481 (£758.01 to £2,083 a month) £481.01 to £967 (£2,083.01 to £4,189 a month) Over £967 a week (£4,189 a month)
A 0% 13.8% 13.8% 13.8%
B 0% 13.8% 13.8% 13.8%
C 0% 13.8% 13.8% 13.8%
F 0% 0% 13.8% 13.8%
H 0% 0% 0% 13.8%
I 0% 0% 13.8% 13.8%
J 0% 13.8% 13.8% 13.8%
L 0% 0% 13.8% 13.8%
M 0% 0% 0% 13.8%
S 0% 0% 13.8% 13.8%
V 0% 0% 0% 13.8%
Z 0% 0% 0% 13.8%

What is NI deducted from?

The good news in all of this is, if you’re employed, you won’t even really notice this happening. Employers deduct contributions from your wage before it’s paid (just like income tax) as well as making their own contributions for each employee. There are no major changes for 2023-24, so no hikes, but also no compensation for the rising cost of living, so it’s swings and roundabouts as ever in life!

You’ll pay NICs on pretty much every aspect of your wage – your salary, commission and bonuses and any overtime you rack up.  Even when you’re on SSP (statutory sick pay) or maternity or paternity leave, you’ll be making your contributions. But remember, that’s a good thing!  Gaps are a definite drawback.

Work related expenses can be deducted although the regulations on this are strict (more so for employees than the self-employed) – so double check you’re getting this right. 

Some benefits-in-kind will also be subject to NICs (that’s things like company cars, or health insurance) so again, if you’re responsible for running payroll, keep a close eye on the government advice so that you know you’re compliant.

Need a bit more advice?

We know. It’s a lot. Especially if you’re the person in charge of working it all out. Payroll isn’t simple at the best of times. But it can be.

Here at Cintra we’ve put in the time and effort to create a highly evolved, compliant and connected suite of software and services that means you don’t have to do all of your payroll alone. Whether you want the payroll software to do the hard work for you, or a fully managed payroll service, where our CIPP-qualified experts become a true extension of your team, we’ll find you a solution where you’re running even the most complex payrolls with speed, accuracy and compliance.

Just book in a demo to find out how we can take the NI-ghtmare out of NI!

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Danielle Nicholson
Danielle Nicholson
Danielle is our Communications and Content Manager, leading the content strategy for Cintra. Outside of her passion for all things copywriting, she loves being on the water in a kayak or taking long walks with her Golden Retriever!