National Insurance
Every person in the United Kingdom has a national insurance number consisting of two letters, six digits, and another letter. National insurance does not apply to a person’s earnings if they earn below the national lower earnings limit, which has varied from year to year.
Primary Class 1 contributions are applied by employees and are deducted at source under the PAYE system from gross income. Secondary Class 1 contributions are payable by employers and commence at the same point as the primary threshold.
The upper earnings limit limits contributions by employees. Above the upper earnings limit, a flat-rate contribution is payable, a percentage of income.
The earnings factor for national insurance is the total gross earnings in which an employer pays national insurance contributions. In certain cases, the higher earnings factor may make up gaps in contribution records. Everyone between 16 and retirement age who was working or earning is presumptively liable to pay national insurance contributions.
Employees pay Class 1 contributions on a fixed percentage of earnings over the primary contribution threshold, which are deducted from gross pay under the PAYE system. Persons who earn between the lower employment limit and the primary class threshold are deemed to have paid contributions.
Self-employed persons pay Class 2 contributions on their self-employed earnings at a very low rate equivalent to the lower earnings limit. Class 2 contributions may be a basis for contribution-based jobseeker’s allowance.
Self-employed persons with profits above the primary contribution threshold must pay profits-related Class 4 contributions, a percentage of all profits between the threshold and the upper earnings limit. It is effectively a flat-rate tax and does not affect any additional entitlement to benefits. Persons under 16 or over retirement age need not pay contributions, and persons below the lower earnings threshold limit are deemed to pay Class 1 contributions equivalent to their actual gross pay.
Persons may receive Class 1 credits even if they have not made contributions, assisting in their qualification for benefits. Persons who are unemployed, registered with the job centre, signing on, and complying with rules for jobseeker’s allowance may qualify irrespective of whether they actually received benefits. Persons in receipt of carer’s allowance are deemed to receive Class 1 credits for every week the benefit is paid.
A person between 16 and under 19 may receive Class 3 credits while in full-time education or college. These assist only in retirement and bereavement benefits and apply while child benefit is being received in respect of the child.
A parent of young children who stays at home to look after the children or a carer seeking income support may receive home responsibilities protection, introduced in 1978. It applies to a person receiving child benefit for a child under 16 or income support as a carer. If they are not otherwise deemed to be getting credits, they may receive the benefit of a reduced number of years’ contributions required to qualify for retirement or bereavement benefits.
Class 3 voluntary contributions may be used by persons to protect retirement and bereavement benefits and are paid voluntarily. They may be available to appropriate persons and self-employed persons with earnings below the small earnings threshold.