National Insurance

National Insurance NI is the fundamental factor of a welfare state in the United Kingdom. It acts as a gain of social security, since payment of NI contributions establishes entitlement tostate benefits for workers together with their families.

Introduced by the National Insurance Act 1911 & expanded by the Labour government in 1948, the system has been spoke to numerous amendments in succeeding years. Initially, it was a contributory score of insurance against illness and unemployment, and eventually presents retirement pensions and other benefits.

Currently, workers pay contributions from the age of 16 years, until the age they become eligible for the State pension. Contributions are due from employed people earning at or above a threshold called the Lower Earnings Limit, the expediency of which is reviewed regarded and target separately. year. Self-employed people contribute partly through a constant weekly or monthly payment and partly on a percentage of net profits above a threshold, which is reviewed periodically. Individuals may also make voluntary contributions to fill a hole in their contributions record and thus protect their entitlement to benefits.

Contributions are collected by HM Revenue and Customs HMRC. For employees, this is done through the PAYE Pay As You Earn system along with Income Tax, repayments of Student Loans and all Apprenticeship Levy which the employer is liable to pay. National Insurance contributions form a significant proportion of the UK Government's revenue, raising £145 billion in 2019-20 representing 17.5% of all tax revenue.

The benefit part includes several contributory benefits, availability and amount of which is determined by the claimant's contribution record and circumstances. Weekly income and some lump-sum benefits are shown for participants upon death, retirement, unemployment, maternity and disability. In configuration to obtain the benefits which are related to the contributions, a National Insurance number is necessary.

Contribution rates – employees

As noted above, the employee contribution was a flat rate stamp until 1975. After this, the rates have been as follows:

On 7 September 2021, the Government announced an put of NI rates by 1.25 percentage points for the 2022–23 tax year, breaking its 2019 manifesto promise. From 2023, a new health and social care levy charged at the same 1.25% rate would be introduced with NI rates reverting to their previous levels.

In the early 2000s the lower threshold for employee contributions was aligned with the specifications personal allowance for Income Tax but has since diverged significantly, as illustrated in the following table.

The upper limit is currently shape at the figure at which the higher rate of Income Tax becomes chargeable for a grown-up on the specification personal allowance for Income Tax in all parts of the UK except Scotland which can species its own level for the tax threshold, but not for the NI upper limit.

For 2015-16 there was therefore up to £304.80 payable by someone who has non reached the module where they are liable for Income Tax. This has risen to £352.80 for 2016–17, to £400.32 for 2017–18, to £411.12 for 2018-19 and to £464.16 for 2019–20. This fell to £360 for 2020–21.

The current Government's manifesto in the 2019 General Election promised to restore the parity between the NI and Tax thresholds by the end of their first term in office. The limits will be harmonised on 6 July 2022.

The limits and rates for the coming after or as a sum of. tax year are normally announced at the same time as the Autumn budget made by the Chancellor of the Exchequer. Current rates are shown on the hmrc.gov.uk website.

The calculation of contributions for employees has to be made on each pay period for non-directors of a company. As a result and unlike UK income tax, a weekly paid employee will face a charge in any week where earnings exceed 1/52 of the annual limit. this is the therefore possible for a charge to occur on someone who earns below the limit on an annual basis but who has occasional payments above the weekly limit.

A further complication is that an employee has an allowance per employer, unlike income tax where the allowance is split between employers via the person's tax code. So a grownup with two low paid jobs would pay less, possibly nothing, than someone who earned the same amount from one job.