Paying National Insurance
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 earners whose profits are above certain levels.
Class 1, 2, and 3 contributions count towards entitlement to some social security benefits and the state pension. Class 4 contributions do not. Class 4 National Insurance is payable via an annual assessment (and possibly a 'payment on account' during the tax year, dependent on profits) and ceases to be payable when the person is over state pension age at the start of the tax year.
Class 1 National Insurance
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.
Deduction amounts have been put into tables for the relevant years for ease of reference - these can be found in “Downloadable Documents” on the Employers Information page. Table letters refer to the different criteria regarding the person liable to pay:
- A – Standard rate payable by most earners over the age of 16 but under the State Pension Age
- J – Deferred rate (must hold a Certificate of Deferment for the year/employee)
- C – Over State Pension age – employer only contributions (should hold a Certificate of Age Exception for the employee)
B – Married woman’s reduced rate only applies to a very limited number of married women or widows who have a Certificate of Election and signed up pre-1977. This being the case, table letter B is no longer published on our website, but can be obtained from the Division upon request.
Payments to directors have special rules to prevent manipulation of how they are paid to minimise the liability to National Insurance. Where a person is a director of a company at the beginning of a tax year the earnings period in respect of those earnings is that tax year, whether or not the person remains a director throughout that year. This means in practice that the director's earnings for the year are split equally across the pay periods (usually 12 months) for the year. To calculate the director's National Insurance due there are two methods. Where directors are paid irregularly: each time you pay a director, work out their National Insurance for their total pay over the tax year so far, including bonuses. To work out what contributions they owe, take off the total employee National Insurance they've paid so far this year.
For directors who are paid regularly: each time you pay a director, work out their National Insurance only on their pay for that period, including bonuses. In their final pay period at the end of the tax year, split the total annual earnings equally across the year and work out whether more employee National Insurance is due and deduct it from their last payment.
Where a director is appointed during the tax year his pay from that pay period to the end of the tax year should be equalised across the pay periods to the end of the tax year.
Class 2 National Insurance
Where you are newly self-employed you need to complete and return Form R133 so we can confirm your self-employed status. A copy of this form can be found on the Forms page under Self Employed
You should notify the Division immediately when you commence self-employment. Failure to do so may result in a penalty charge of £100. (Social Security (Contributions) Regulations 2001 regulation 87(3)).
This charge may be incurred within 6 years if you advise the Division late.
As a self-employed individual you are responsible for ensuring that you pay your National Insurance contributions at the correct time. Failure to do so could result in your being prosecuted and might mean that any claim to certain benefits could be delayed.
Class 2 payments are due monthly and should be paid via direct debit by completing a form CF351, ‘Application to pay National Insurance Contributions by Direct Debit’, which is available under the Forms Section on the Income Tax and National Insurance website. Other forms of payment are available if required.
Class 2 is paid by self-employed earners under State Pension Age. Class 2 contributions do not count for Job Seeker’s Allowance, but do count for incapacity, Manx pension, Bereavement Support payment and Maternity Allowance.
You may be eligible for Class 2 voluntary payments if you are working outside of the Isle of Man. Further details can be found on the Voluntary contributions page.
Class 3 National Insurance
Class 3 is a voluntary contribution. You may get gaps in your record if you are not liable to pay National Insurance or do not get National Insurance credits. A gap can mean you will not have enough years of National Insurance contributions to get the full State Pension, sometimes referred to as 'Qualifying Years'. Further details can be found on the Voluntary contributions page.
Class 4 National Insurance
Class 4 contributions are collected as part of your annual income tax assessment process. The thresholds for charging Class 4 are updated annually and details of the current rates and thresholds can be found on the Income Tax and National Insurance website.
On receipt of your completed tax return, we will review it and assess your profit for income tax. Should this profit exceed the thresholds set, a Class 4 assessment will also be issued. Payment is due in a lump sum at the same time and in the same way as your income tax, and you should therefore plan for this.
Class 2 contributions are not included in this amount and must be paid separately by our preferred method of payment, Direct Debit.