How Much is National Insurance?
Understanding National Insurance rates and ensuring correct deductions through PAYE or self-assessment is crucial for compliance and financial planning.
National Insurance (NI) contributions are essential for funding state benefits and the State Pension. The amount you pay depends on your employment status and earnings. Here’s an updated guide to the recent changes and how they affect your contributions.
Class 1 National Insurance Contributions
For Employees:
Rate Reduction: The Class 1 National Insurance rate has been reduced from 10% to 8%.
Earnings Between £1,048 and £4,189 Per Month: The rate is 8%.
Earnings Above £4,189 Per Month: The rate is 2%.
Pay As You Earn (PAYE) System:
Employer Deductions: Your employer deducts Class 1 NI contributions from your salary.
Example Calculation:
Monthly Earnings: £5,000
First £1,048: No NI contribution
£1,048 to £4,189: 8% on £3,141 = £251.28
Above £4,189: 2% on £811 = £16.22
Total NI Contribution: £251.28 + £16.22 = £267.50
Class 2 and Class 4 National Insurance Contributions for the Self-Employed
For Self-Employed Individuals:
Class 2 NI: Self-employed individuals no longer have to pay Class 2 NI contributions.
Class 4 NI: The rate has been reduced to 6%.
Class 4 NI Contributions:
Based on your self-assessment tax return.
Paid alongside your income tax.
Example Calculation:
Annual Profits: £50,000
Profits up to £12,570: No NI contribution
Profits above £12,570: 6% on £37,430 = £2,245.80
Summary
The amount of National Insurance you pay depends on your employment status and earnings. Recent changes have reduced the rates for both employees and self-employed individuals, making it essential to stay updated and ensure accurate contributions.
Employees: Pay 8% on earnings between £1,048 and £4,189 per month and 2% on earnings above £4,189 per month.
Self-Employed: No longer pay Class 2 NI and pay 6% Class 4 NI based on their self-assessment tax return.
Understanding these rates and ensuring correct deductions through PAYE or self-assessment is crucial for compliance and financial planning.
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