Everything You Need To Know About National Insurance

I don’t know about you but when I had my first ‘proper’ job I was very confused about my payslip. Sure I knew I had to pay tax on my earnings, but I had no clue about National Insurance. And it seems I’m not alone!

National Insurance has been in the news a lot lately with the increases coming into play next year. So I thought it was time to do a post all about what it is, how it affects your pension whether you’re employed, self-employed or on benefits, and what the increases mean.

What is National Insurance?

National Insurance contributions so directly towards your future State Pension and other government-funded things like schools and the NHS. So it’s there to help you in later life and help the country as a whole.

You pay mandatory NI if you’re over the age of 16 and are either:

• An employee earning over £184 a week
• Self-employed and making a profit of £6,515 or more a year.

If you earn between £120 and £184 a week, your contributions are treated as having been paid to protect your National Insurance record.

To be able to pay your National Insurance contributions you need an NI number. This is a unique reference code made up of letters and numbers that never changes. For many of it’s that blue and red card you would have gotten around your 16th birthday. But you can also find it on your payslip, P60, or any letters about pension, tax, or benefits.

If you’re not working for some reason or earning lower amounts you can pay voluntary contributions to avoid gaps in your NI contributions. If you’re close to the 35 years this is a good way to push yourself over the final hurdle.  You can check how many years of contributions you’ve made through the Government Gateway, which you need to register for. Currently, you can only make backdated payments to top up your years for the past six years.

How does it affect those who are self-employed?

For people who are self-employed, you can find out how much National Insurance you need to pay when you file your annual tax self-assessment. Those with profits under £6,515 do not have to pay National Insurance. But you can make voluntary contributions to help you with your state pension.

If you are a self-employed woman looking to have kids and expect to claim maternity allowance then pay National Insurance in advance. The standard Maternity Allowance is currently £151.97 a week and you must have paid Class 2 National Insurance contributions for at least 13 of the 66 weeks before your baby is due. If you’ve not paid enough when you make your claim the Department for Works and Pensions (DWP) will let you know. If you’ve not paid enough you’ll only be able to get £27 a week for 39 weeks which is a massive jump.

What happens if you can’t work?

People who aren’t in paid work can claim ‘credits’ which count towards the 35 years of NI contributions. This is an automatic thing for people on certain benefits such as job seeker’s allowance, and when receiving statutory maternity pay. But the rules are quite complicated.

If you stop working to care for children you’ll only get NI contributions if you apply for child benefit, even if you know you’re not eligible for it. People who aren’t working and caring for a child under the age of 12 can receive NI credits, but only if they apply. Then even if you’re rejected as your partner ears too much you’ll get the credit. It’s pretty confusing but worth looking into.

What about the recent National Insurance increases?

It was announced a few weeks back that certain National Insurance contributions would rise by 1.25 percentage points from April 2022 when the new tax year starts. This applies to both those employed ad self-employed. And is paid by all working adults, including those over the state pension age but still working. This is in a bid to help fund health and social care costs in part due to the pandemic.

The government has said that the increases are expected to raise £12bn a year which will initially go towards easing pressure on th NHS. And then a proportion will be moved into the social care system over the next three years. This is mainly to help older people and people with high care needs.

From 2023 the health and social care levy amount will actually be split out on our payslips. So you’ll be able to see exactly how much you’re contributing to this

To find out more about the rise check out this article by Money Saving Expert. And MrMoneyJar on Instagram did a great post talking about the increase in National Insurance that you can see below.

 

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A post shared by Timi Merriman-Johnson (@mrmoneyjar)

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