National Insurance Contributions
General |
Payment of National Insurance Contributions |
National Insurance Credits |
Contributory BenefitsIf you live in the United Kingdom you should visit HM Revenue and Customs - we can only deal with queries concerning the Isle of Man.
General
Most people who work have
to pay National Insurance contributions. National insurance is not payable by individuals below age 16 or above State Pension age.
National Insurance contributions are payable to the Income Tax Division of the Treasury. See here for rates and thresholds.
There are four classes
of contributions and in the course of a person's working life they may
need to change from one class to another or pay more than one class at
a time.
The level of a person's
contribution and the rules regarding payment depend on the Class of contribution
they pay which may be determined by the type of employment they are engaged in.
-
Class 1 - Paid by employed
earners and their employers
- Class 2 - Paid by self-employed
earners
- Class 3 - Paid voluntarily
by persons not liable for any other Class of contribution
- Class 4 - Paid in addition
to Class 2 contributions by self-employed people whose profits are above
certain level (set annually)
Class 1, 2, and 3 contributions count towards entitlement to some social security benefits. Class 4 contributions do not.
Earnings Factors
For a tax year to qualify
for contributory benefit purposes, an insured person must pay sufficient contributions
at either the Class 1, 2 or 3 rate to achieve the required Earnings Factor
set each year, or to have had earnings from employed earner's employment
at least equivalent to the lower earnings level (LEL) which is set
each year, even though contributions have not been paid on those earnings.
An earnings factor is a
figure which represents the amount of earnings on which contributions
have been paid or treated as paid.
Whilst employed earners actually start paying National Insurance contributions once their earnings exceed the primary earnings threshold set for that tax year if their earnings reach the annual lower earnings limit they are treated as if they had paid contributions at 0% on any earnings they have up to the primary earnings threshold. Earnings on which contributions are paid at that zero rate count towards a person's entitlement to contributory benefits, such as Jobseeker's Allowance or Incapacity Benefit. This protects the National Insurance records of low-paid earners.
Payment of National Insurance Contributions
Employed earners' Class
1 primary contributions are collected by their employer who deducts the
appropriate amount from their pay. The employer then pays this to the Income Tax Division of the Treasury.
Click here for an application form to pay Class 2 contributions. Click here for a form to notify cessation of self-employment.
To count for benefit purposes,
contributions must be paid within strict time limits. There is also
a time penalty if contributions required for a particular benefit claim
are not paid until the time of that claim.
National Insurance Credits
To the extent necessary to make up a qualifying year, National Insurance credits can be awarded to you if you are -
- Claiming Jobseeker's Allowance (Class 1 credit)
- Claiming Incapacity Benefit (Class 1 credit)
- Claiming Maternity Allowance (Class 1 credit)
- Claiming Adoption Allowance (Class 1 credit)
- Claiming Child Benefit for a child under the age of 12 (Class 3 credit)
- Claiming Carer's Allowance (Class 3 credit)
- Claiming Employed Person's Allowance/Disabled worker (Class 1 credit)
- Claiming Employed Person's Allowance/Non-Disabled worker (Class 3 credit)
- A man approaching age 65 - from 6 April 2010, these credits are being phased out in line with the increase in women's State Pension age (Class 1 credit)
- On an approved training course (Class1 credit)
- Required to attend jury service and did not have earnings at or exceeding the Lower Earnings Limit from
employed earner's employment (Class 1 credit)
- Approved foster parents (Class 3 credit)
- A person caring for a child under the age of 12 (but not receiving child benefit) who has a certain type of relationship to the child e.g. grandparent, from 6 April 2012 (Class 3 credit)
Class 1 credits count towards the same social security benefits as Class 1 National Insurance contributions and Class 3 credits towards the same social security benefits as Class 3 National Insurance contributions.
Contributory Benefits
The Class of National Insurance contributions paid affects the benefits a person may be entitled to.
| Class 1 | Class 2 | Class 3 | Benefit |
|---|
| Yes | No | No | Jobseeker's Allowance |
| Yes | Yes | No | Incapacity Benefit |
| Yes | Yes | No | Maternity Allowance |
| Yes | Yes | Yes | Bereavement Payment |
| Yes | Yes | Yes | Widowed Parent's Allowance |
| Yes | Yes | Yes | Bereavement Allowance |
| Yes | Yes | Yes | Retirement Pension (basic) |
| Yes | No | No | Additional Pension |
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