Contributing into national insurance is another form of tax paid by individuals earning income in the UK.
National insurance is the second-largest source of income for the UK.
National Insurance (NI) is a type of tax or system where employers, employees and self-employed individuals pay a certain amount as a contribution for the financing of state benefits.
It is the second-largest source of income for the United Kingdom. It is paid by individuals between the age of 16 and the state pension age and who are earning income over the small threshold.
Who pays National Insurance?
- Every individual that is between age 16 and state pension age.
- They must also be earning income over the small threshold in the UK.
- The small threshold for 2019/20 is £6365.
Different categories of earners in the UK.
Income received in return for labour or services is referred to as earnings.
Earning will include salary, profit from the business, wages, statutory sick pay, maternity pay e.t.c
The group of earners pays different national insurance so it is important we know the difference.
Two types of earning in the UK.
Earning from employment and earnings from self-employment:
Earnings from individuals that are in gainful employment under a contract for service.
Self-employed earnings are those that are received for an exchange of services or labour without a contract for service.
The main issue with contributing into national insurance is paid by the different groups of earnings.
The employer deducts the national insurance from their employees before paying them.
Income from self-employment is based on profit from the business and the number of weeks trading and its paid by the self-employed individual
Time of payment Of national insurance:
Employers would remit the money deducted to HMRC.
Self-employed individual pays this national insurance when they submit their returns but it’s due by the 31st of Jan following the end of the tax year.
The purpose of contributing into national insurance.
The main reason for the UK government deducting national insurance is to :
- To provide funds for the state pension.
- To provide funds for a benefit paid to individuals in the UK.
- Supporting the National health system.
Benefits to taxpayers for contributing into national insurance.
- The contributions that are made would contribute toward their state pension payments.
- The national insurance contribution is used to access some benefits paid to taxpayers.
Example of such benefits includes Job seekers allowance, Maternity allowance, bereavement allowance, statutory sick pay, e.t.c.
Conclusion on contributing into national insurance
.
These deductions are not just tax but have other benefits that the taxpayer would enjoy
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