Why is it important to know about National Insurance (NI)?
It is very important to understand National Insurance systems and identify who needs to pay National Insurance Contributions.
Firstly what is NI? It’s a type of taxation and it deducted from an employee’s total earnings. Both the employer and employee pay NI and it funds entitlements to benefits, one of these being the state pension. If you are under 16 or over the state pension age you do not pay NI. Every time a contribution is made it is recorded on the individual’s insurance record. It is vital to use the correct NI number for an employee. A NI number is a combination of numbers and letters which are unique to an individual. It identities the individual to HMRC and DWP (Department for work and Pensions). It ensures that the contributions made are allocated to the individuals record, if an incorrect NI is used it could mean contributions not being allocated which could affect the individuals entitlement to benefits. An employee’s NI can be found on the NI card or letter, on a P45, P60 and Government correspondents. NI numbers are issued to everyone before their 16th Birthday. If an individual does not know there NI they can contact the NI helpline on 0300 200 3500.
Different class types of NIC’s.
Class 1 is the most common and based on an employee’s earnings and is broken down into two elements. Primary and secondary. Primary being the employee’s deductions from earnings and secondary being the employer’s deductions.
Class 1A and 1B are contributions made by the employer only in relation to benefits in kind.
Class 2 are contributions from Self Employed individuals
Class 3 are voluntary contributions made by an employee to fill any gaps in NI record.
Different class types of NIC category.
A – Standard rate
B – Reduced rate
C – Employee has reached State Pension Age
H – Apprentice under 25
J – Deferment (more than one job)
M – Employee under 21
Z – Employee under 21 with deferment