What are National Insurance Contributions (NICs)?
In addition to income tax, individuals have another amount to pay on earnings known as National Insurance Contributions (NICs). NICs are similar to tax except that paying them allow you to qualify for certain benefits.
Which benefits are linked to National Insurance Contributions?
NICs mainly cover the state pension, as well as additional and new state pensions. They are also used to supply contribution based allowances such as Universal Credit and Employment & Support Allowance. Finally, NICs can be used to determine eligibility for Maternity Allowance and Bereavement benefits.
How do I pay National Insurance Contributions?
There are four types (or classes) of NICs which are determined and paid in different ways.
Class 1 NICs are linked to employment income; you pay a rate of 8% on earnings above £242 per week, up to £967. Earnings above £967 per week have a 2% rate of NICs applied to them. Class 1 NICs are deducted from your pay in the same fashion as income tax, meaning you do not usually need to actively pay these NICs. Employers pay Class 1 NICs on earnings above £96 at a rate of 15%. There is no reduced higher rate for employer NICs.
Class 2 NICs are linked to self-employment income such as sole traders. If you earn more than £6,845 in profits per year you will not be required to pay anything and still get the benefits of paying your NICs. If you do not earn at least £6,845 then you can voluntarily pay £182 to cover the your NICs for the year
Class 3 NICs are known as voluntary contributions. You can choose to pay Class 3 NICs at a rate of £17.75 per week if you are not currently paying anything towards your NICs.
Class 4 NICs are linked to self-employment like Class 2 NICs, but work more like Class 1 NICs. They have a rate of 6% for profits greater than £12,570 and a rate of 2% on profits greater than £50,270. Class 4 NICs are paid alongside your self-assessment income tax.
How does the government know how much I’ve paid in National Insurance Contributions?
Your NICs are assigned to your National Insurance Number which will be used by your employer or on your tax return to ensure that any NICs you pay will be applied to determine which benefits and how much benefit you are eligible for.
You can check your NICs and if you are up to date by creating an personal tax account with HMRC.
Please note that while the above figures and rates should be accurate at the time this blog was published, they are subject to change. Always make sure to double check the rates and allowances from official sources such as those listed on our useful links menu. Figures and thresholds are accurate to the 2025/26 tax year.
If you require any advice or more information on the above, please do not hesitate to contact us.
Adam is our managing director and a fully AAT-certified accountant. Adam founded Short Accounting in 2014 with the aim of helping business owners with their accounting and tax needs so that they can focus on growing and managing their businesses.
Over the years Adam has helped thousands of SMEs, sole traders, limited companies and more with the full range of accounting services. He’s a firm proponent of adopting the latest in accounting tech to help streamline processes to ensure that all of our clients get the best service possible.
