National insurance in the UK
The National Insurance contributions is an alternative of the Czech medical and social insurance. Based on the following application, you pay for the insurance and various state benefits, including for example pension. To pay the insurance, you must hold the National Insurance Number (NIN).
The insurance must be paid by everyone, who:
- Reached the age of 16,
- Is an employee earning more than £155 per week,
- Is self-employed earning more than £5, 965 per tax year.
The national insurance is divided into several groups, the so-called National Insurance classes:
| Group | Who is included |
|---|---|
| Class 1 | Employees earning more than £155 per week, younger than the retirement age. This is automatically charged by the employer. |
| Class 1A or 1B | The employer pays for expenses and state benefits of the employee. |
| Class 2 | For self-employed with the profit lower than £8, 060 per tax year. |
| Class 3 | Voluntary insurance – you only pay, if you decide so. If you have any gaps in your payments for the national insurance. |
| Class 3A | Voluntary insurance – might pay the rest of your pension by a single general transfer, if you decided to go retired before April 6th, 2016. |
| Class 4 | For self-employed with the income higher than £8, 060 per tax year. |
How much to pay:
I am stating the most common payments. The overall statement can be accessed here.
| Group | Who is included | Rate | Explanation |
|---|---|---|---|
| Class 1 | Employee | 0% | Income from £0 to £112 per week |
| 12% | Income from £155 to £815 per week (between £672 and £3, 532 per month) | ||
| 2% | Income over £815 per week (£3, 532 per month) | ||
| Class 2 | Self-employed | £2.80 per week | Income from £5, 965 to £8, 060 |
| Class 4 | 9% | Income from £8, 060 to £42, 385 | |
| 2% | Income over £42, 385 |
Concerning the Class 1, somebody might be surprised by the gap in insurance payments. I have asked the tax office and it is true that, if you earn less than £155 per week, you don’t pay anything for the social and medical insurance. In the category between £112 and £155, the employer pays for your national insurance. Based on that, your pension is calculated by the tax office.
Facts
- Majority of you are going to belong to the Class 1, where you are charged 12 % from all your earnings
Example:
Every week, you are going to earn £280.
Per year (+/-) £14, 560 that equals to 52 weeks multiplied by £280 wage.
The national insurance costs £1, 747.2 per tax year (£14, 560 x 0.12)
- As a self-employed person, you earn for example £8, 059 and your national insurance is going to be £146.
Explanation:
In the category bellow £8, 060, you pay the basic tariff of £2.8 per week.
Therefore, if you earn less than this amount of money, you pay only £2.8 weekly, which you can multiply by 52 weeks in the year.
- As self-employed earning £14, 000 per year, your national insurance is going to cost £680.6.
Explanation:
- £146 (payment of the Class 2) that means 2.8 x 52 weeks of the year.
- £534.6 (9 % national insurance from the amount over £8, 060).
However, these payments only cover the national insurance (social and medical care). Furthermore, there are also taxes.
In the last example, you are charged (20 %) for everything that goes above £11, 000:
£600 = 20 % is the tax from £3, 000 (from £14, 000 earned, £3, 000 is subject of taxation)
Recap of the example
£14 000 (earnings per year)
– £146 (national insurance of £2.8 per week),
– £534.6 (9 % national insurance from the amount over £8, 060),
– £600 (20 % taxes from amount over £3, 000 that means from £14, 000 earned, only £3, 000 is subject of taxation)
= £12, 719.4 is the net profit
These calculated sums of money might differ, if there is a combination of job and self-employed business.