WHY IS IMPORTANT I HAVE NATIONAL INSURANCE CONTRIBUTIONS?

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Contributing national insurance

National Insurance in the UK.

Contributing to 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.

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 labor 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 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 labor without a contract for service.

 The main issues with national insurance 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 number of week trading and its paid by the self-employed individual

Time of payment Of national insurance:

Employers would remit the money deducted to HMRC.

A self-employed individual pays this national insurance when they submit their returns but its due by 31st of Jan following the end of the tax year.

The purpose of contributing to 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 tax payers for contributing to 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.

These deductions are not just tax but have other benefits that the taxpayer would enjoy

To learn more about this tax deduction from our specialist Northampton accountants, you can click.

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