National Insurance is a tax that applies to earnings as well as profits from any self-employment. So how much is National Insurance? And how do you pay the tax? Let’s explore.
How much is National Insurance?
The amount of National Insurance you pay depends on your income, or business profits.
Employee contributions
If you’re an employee, you pay Class 1 National Insurance contributions as long as you earn over the earnings threshold.
For the 2021/22 tax year, you pay 12% on earnings between £184 and £967 per week (£797 to £4,189 a month). You pay 2% on anything over the upper threshold. Contributions are taken automatically from your monthly pay.
Self-employed contributions
If you’re self-employed, you pay either Class 2 or Class 4 contributions. This depends on how much profit you make in a year.
If you make more than £6,515 in a year, but less than £9,569, you pay Class 2 contributions. This is £3.05 a week.
If you make profits of £9,569 or more in a year, then you pay Class 4 contributions of 9% on profits up to £50,270, and 2% on anything above this figure.
If you earn less than £6,515, you don’t have to pay any National Insurance. However, as your entitlement to a number of state benefits, including the State Pension, is based on years of qualifying contributions, you can make voluntary contributions to protect your record. These are Class 3 contributions.
Employer contributions
National Insurance doesn’t just apply to employees, the tax also applies to employers. These are Class 1, 1A and 1B contributions.
The amount payable depends on profits made by the employer. To find out more about employer contributions, you can visit the gov.uk website.
How much will National Insurance be in 2022/23?
On 8 September 2021, MPs voted through the health and social care levy, which will increase National Insurance by 1.25% from the 2022/23 tax year. From 2023, it will become a separate tax on income.
The government says this extra tax will help to fund the NHS and social care. To read more on this, see our article explaining what the new health and social care levy means for you.
Who is exempt from paying National Insurance?
You don’t have to pay National Insurance if you are under 16.
You also don’t have to make any contributions if you are over State Pension age, as long as you aren’t self-employed and making Class 4 contributions. If this applies to you, you can stop making these payments at the end of the tax year in which you reach State Pension age.
State Pension age is currently 66, though it will increase to 67 by 2029. Another rise to 68 is due by 2039.
You also don’t need to make any contributions if you make less than £184 per week. However, if you do make less than £184, you’re still treated as though you are making contributions, even though you aren’t liable to pay.
Can I stop paying National Insurance after I’ve made 35 years of payments?
In order to access the full State Pension, you must have made at least 35 years of qualifying National Insurance contributions. If you’ve made fewer, you’ll still receive a proportion of the State Pension as long as you’ve made at least 10 years of contributions.
That being said, even if you’ve made 35 years of payments, you can’t opt-out of the tax if you are under the current State Pension age.
While this may seem unfair, it’s believed that the treasury raises around £125 billion a year from contributors who have already made at least 35 years of payments.
Other tips for boosting retirement income
If you’re nearing retirement age, you may be interested in our articles that explore how you can boost your State Pension and other ways to boost your retirement income.