The requirement to make National Insurance contributions applies to UK Employers, Employees (including Company Directors) and Self-employed individuals.
Making sure you understand the different types of National Insurance contributions is vital when running your business.
What are National Insurance Contributions?
National insurance contributions (NICs) are essentially a tax on earned income that individuals and Employers make to fund various businesses and services including the NHS, state pension, maternity pay etc.
Making these contributions helps you qualify for certain benefits including the state pension.
There are several factors that determine the type of contribution that is payable which include:
You pay mandatory National Insurance if you’re 16 or over and are either:
- an employee earning more than £242 per week from one job
- self-employed and making a profit of more than £12,570 a year
Employers must also pay National Insurance contributions on their Employees’ earnings, expenses, and benefits.
National Insurance categories
National Insurance contributions are divided into different classes depending on earnings. These are:
As an Employee, your Class 1 NI contributions are a percentage of your income, and are made up from the following:
- A deduction from your pay (Class 1 Primary)
- A secondary contribution paid by their employer (Class 1 Secondary)
For the 2023/24 tax year, most Employees will pay these National Insurance contributions rates on their income:
Self employed individuals will make National Insurance contributions on their income, depending on how much they earn.
Rather than pay these contributions monthly, most self employed people will pay their contributions through their Self Assessment tax return at the end of the each tax year.
The current rates for 2023/24 for self employed individuals earning more than £12,570 on profits a year are as follows:
- Class 2 – Paid at a flat weekly rate of £3.45 a week.
- Class 4 – 9% on profits between £12,570 and £50,270 In addition, there is a further 2% for on profits above £50,270.
Class 3 – Voluntary contributions
Class 3 National Insurance contributions are voluntary contributions that you can make to fill any gaps in your NI record.
For example, if you are a Company Director and have paid yourself a Director’s salary below the lower earnings limit in previous years, you can make these voluntary contributions to avoid any gaps.
Taking a smaller salary and paying yourself dividends can be a very tax efficient way to pay yourself through your Limited Company, however, it is important to ensure you also prevent any gaps in your National Insurance record.
This can help to make sure you have enough years of contributions to qualify for the full State pension or certain other benefits.
The Class 3 voluntary contributions for the 2023/24 tax year are payable at a flat rate of £17.45 per week.
National Insurance for company directors
Directors are classed as employees and pay National Insurance contributions on annual income from salary and bonuses over £12,570.
The National Insurance contributions for a Company Director are usually calculated from their annual earnings, rather than being deducted from each pay period.
You will not pay National Insurance on any dividends and different rules apply for these. Please visit here for more information on tax on dividend payments.
How Blue Spire can help
Understanding National Insurance rates and contributions is an essential business process, but also one that can be very complex and time-consuming.
At Blue Spire, we provide services for all your business needs such as, Accounting, Bookkeeping, Taxation, Payroll, VAT, and Business Growth.
|We would be delighted to advise on any compliance matters relevant to your own circumstances so please contact us today and we will be more than happy to assist.