National insurance is a government tax that covers a wide range of things, from the state pension to unemployment benefit. The UK Government relies on NI for its main source of income, and if you’re not clued up about how it works then you could be missing out on some valuable benefits. Here we take a look at the changes to NI that have been announced recently and explain what they mean for you.
What is national insurance?
National Insurance is a type of state insurance scheme. It’s paid by employees and employers, and it’s used to pay for the state pension and other benefits. It’s a compulsory tax, which means you have to pay it if you work in the UK and earn more than £162 per week. The amount you pay depends on your age, how much you earn, and whether or not you’re self-employed.
The UK Governments main source of income besides taxes.
National Insurance is a type of tax paid by employers and employees, with the money going to the government. It’s not an income tax but it does contribute to your eventual pension and state benefits. National Insurance contributions are collected by HMRC on behalf of their various agencies including the NHS, Ministry of Defence and local governments. It is also used to fund other areas such as the JobCentre Plus helpline and Pensions Service.
So what are the changes?
The changes to National Insurance contributions (NICs) are as follows:
● Higher earners will pay more. The government has announced that the rate of Class 4 NICs for employees earning more than £46,350 will increase from 9% to 10%. This means that the amount you pay depends on your salary and how much you earn. The table below shows the new rates for each band.
● Paying NI is based on your earnings instead of your total income. Previously, if someone earned £47K a year but had additional income from shares or dividends on their investments, they would’ve paid less NICs than someone earning £48K who didn’t have any other income sources outside of their salary – even though both workers were technically in the same band. This meant that some people could avoid paying full NI contributions by taking part in a number of different investments and schemes which could potentially lead to underpayment of tax!
What are the benefits of national insurance?
National Insurance is a system that collects contributions from you and your employer to pay for certain benefits such as the state pension, NHS treatment and jobseeker’s allowance.
The main benefit of national insurance is that it allows you to claim certain benefits based on how much you have paid into the system. These include:
● State Pension – this is a monthly payment made by the government once you reach retirement age. The amount you receive depends on how much NICs you paid while working
● Attendance Allowance – if someone needs care at home due to illness or disability, this can help them (and their partner) with their daily costs of living
● Carer’s Allowance – this is a weekly payment made by the government if someone cares for another person who has an illness or disability and cannot look after themselves without help
● Sick pay: If you’re unable to work because of illness or injury, then your employer has to pay Statutory Sick Pay (SSP) to help cover any lost income from earnings. The amount they’ll pay depends on how much you earn per week and how long they’ve been paying NI contributions themselves – if they don’t have enough SSP in their account then they’ll have to make up the difference with National Insurance payments instead.* Maternity leave: If a new mum or dad decides not take any maternity leave after giving birth then she/he won’t get any extra money from their employers while taking time off work with their baby either – but some employers will still provide some form of paid sick leave during this period by way of National Insurance contributions as above.* Job-searching costs: You may also be entitled to help finding work after leaving school or college if something happens which prevents them from earning money at all; this includes training courses aimed specifically at helping people find employment within certain industries that might otherwise prove difficult without support such as construction careers through our Build UK scheme (or similar).
How do I pay national insurance?
The easiest way to pay National Insurance is through your employer. They will deduct it from your salary and pass it on to HMRC for you. If you’re self-employed, you’ll need to pay directly into HMRC yourself. You can do this by setting up a direct debit or by paying in person at an HMRC office. Pension contributions are automatically deducted from your salary before you get paid and passed on to HMRC for you; there’s no need for any action on your part here! If you’re making student loan payments, those are also automatically deducted from what’s left of your wages when they arrive – so again, no need for action here! Finally, if there’s any money left over after all these deductions have been made (and if that’s not enough), then HMRC will collect the rest of the money as benefits
You can’t opt out of NI.
You can’t opt out of National Insurance. You are legally obliged to pay it and will be penalised if you don’t. If you’re self-employed, you have to pay this money. If your employer pays National Insurance on your behalf, they will stop taking money from your salary as soon as they’ve paid what they owe.
You may have to pay more to enjoy its benefits.
And if you’re a self-employed sole trader, you may have to pay more to enjoy its benefits.
It’s a tax on your income and designed to help you when you retire. You can’t opt out of national insurance contributions (NIC), but you can reduce them if you earn less than £8,632 per year – that’s because the government wants more from people with high incomes and less from those who earn the least.
We hope this article has helped you better understand the importance of national insurance and what it means for you. The new changes are going to affect many people, so we urge everyone to be aware of them and take action if necessary. If you have any queries regarding National Insurance please do get in contact with us on 01594 842188
- Please note this information was correct at time of writing but is an ever changing sector currently, please check Government website for the very latest updates