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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.

The small threshold for 2019/20 is £6,365.

This insurance is a pertinent part of living and earning above the threshold in the UK and, as such, every individual who pays it has a National Insurance Number (NIN).

There are various categories of earners in the UK and the income they receive in return for labour or services includes salary, profit from the business, wages, statutory sick pay, etc.

These groups of earners pay varying National Insurance each. Based on these groups, there are two types of earnings in the UK; earnings from employment and earnings from self-employment.

The major difference between these is the contract of service condition.

While the former explains earnings from individuals who are in gainful employment under a contract of service, the latter is received for an exchange of services or labour without a contract of service.

Our accounting firm in the UK will calculate the amount of National Insurance you can expect to pay in a particular tax year.

Read more: – Which?

national insurance


Class 1 national insurance:

There are two types of Class 1.

  • The Class 1 primary(employee).
  • Class 1 secondary(employers).

The Class 1 primary national insurance

This tax is deducted from employees’ income when they go over the threshold.

The threshold depends on the frequency of the payments.

In the tax year 2019/20,

For weekly paid earners: Income earned over £166.

Monthly paid employees: Income over £962.

A yearly threshold is applied to Directors: Income over £8632.

Rates applied to Class 1 national insurance.

The rate that will be applied would depend on the categories of the taxpayer.

Also, the frequency of payment and amount earned will also be considered.

The most common category for most employees is  Categories A.

 The rate for categories A:

Class I primary deduction for weekly paid earners that receive income between £166 to £962 is 12% and 2% for any amount over.

For income earned monthly between £719 and 4167 the rate applied is 12 %.

Any amount earned above this is at 2%.

Other categories.

  •  B: for married and widows entitled to pay reduced contributions.
  •  C: These are for employees over the state pension age.
  • J: These are for the employee that defers their contributions.
  • H: This code is for apprentices under 25.
  • M: Employees under 21 years old.
  • Z: Employees under 21 who defer their NI.
  • X: Employees under 16.

national insurance

The Class 1 secondary national insurance.

For an employee earning over £166, the employers pay 13.8% and there is no upper limit.

The employer can claim employment allowance for this expense but they must qualify to claim this relief.

This allowance gives relieves employers by allowing the deduction of £3000 from their PAYE bill.

Class 1A national insurance.

Employers that provide benefits to their employees pay Class IA.

Benefit such as cars,medical,travel,e.t.c.

Whenever an employee receives such benefit, they pay tax on the cost of the benefit to the employer whilst their employer pays Class 1A.

The percentage of Class 1A  is 13.8 % which is applied to the cost of the benefit.

Class 3 National Insurance.

Some individuals do not pay national insurance because they have not gone over the threshold.

Such taxpayers could make voluntary contributions also referred to as Class 3.

If eligible they will have to make an arrangement with HMRC on the frequency of the payment and the amount paid.

It could be made either monthly, quarterly, or yearly.

To contact HMRC to make such an arrangement you can click.


To learn more about this tax deduction, you can click.

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