How Are National Insurance Contributions Calculated?

National Insurance contributions – also known as NICs – are taken from the income that you earn. They help to build up your entitlement to certain benefits such as Maternity Allowance and State Pension. There’s a difference between the manner in which these calculations are made for employed and self-employed workers.

How are National Insurance contributions calculated? Find out how to work out National Insurance and tax deductions here…

National Insurance for Employees

Class 1 NICs will be paid if you’re an employee and earn more than £183 a week. Then you pay 12% of your earnings above this limit up to £962 a week. With earnings over £962 a week this rate then drops to 2% of your earnings.

So, if you earn £1,000 a week, you’ll pay nothing on the first £183, 12% on the next £779 meaning payment of £93.48, and 2% on the next £38 equalling a payment of 0.76p. The total NIC on a weekly salary of £1000 is, therefore, £169.48.

On top of this, your employer will make a secondary contribution of 13.8% of earnings above £166 a week. These figures are all valid for the 2020-2021 period.

National Insurance for Self-Employed

Class 2 National Insurance rates for the self-employed are as follows:

• If your earnings are less than £6,025 then you won’t have to pay any contributions
• Between £6,025 and £8,164, the rate is £2.85 a week, an annual total of £148.20
• From £8,164 to £45,000 the rate is 9% of earnings plus £2.85 a week, an annual total of £3,373.20
• More than £45,000 incurs a rate of 2% plus £2.85 a week, an annual total of £3,483

Voluntary National Insurance Contributions

There may be gaps in your National Insurance contributions for various reasons including low earnings, being unemployed and not claiming benefit, or you had a Certificate of Small Earnings Exception during self-employment.

You can get in touch with HMRC for information regarding your National Insurance account. Then you can decide if you want to make up any shortfall. You must be eligible to pay voluntary National Insurance contributions for the required period of time and meet the deadline of within six years at the end of the tax year when the contributions needed to be paid.

You can choose to pay Class 3 voluntary National Insurance contributions to qualify for benefits like State Pension, and Class 2 National Insurance contributions as part of your self-assessment tax bill.

Get Professional Guidance

When you need expert help simply contact a trusted outsourced bookkeeping company offering payroll services in London. Specialist accountants will take care of all income tax and NIC deductions, and meet all of your payroll obligations on time. This will prevent any penalties that may be issued from HMRC due to incorrect deductions being made.

You’ll be kept up to date with any changes in payroll legislation and be assured of professional help with all of your financial responsibilities including VAT return services. Choose NIC and PAYE professionals and never miss an HMRC deadline.