National Insurance is a type of tax that helps funds state benefits such as a pension, unemployed and other benefits. This is a guide about why we need to pay National Insurance.
Why do we pay NI
National Insurance is used to pay for the NHS, benefits, sickness, disability allowance and state pension. By law, employees must be covered with “statutory” payments such as sick pay and maternity pay. It will be paid directly by the employer. People who reach state retirement age will not need to pay NI. The government has mentioned that National Insurance will contribute towards social care in England to recover from the pandemic. Employers often choose to run their own sick pay and maternity schemes because it is better than the statutory payments.
Who pays NI
If you are employed you are expected to pay Class 1 National insurance. Employers will have different rates to employees depending on their category letters. Your employer will deduct your National Insurance from your wages. For the majority of employees, the rates are 12%. Anyone aged 16 or older will have to pay National Insurance. This also applies to self-employed who makes profits of over £6,365 a year.
Due to the pandemic, millions of workers will now have to pay hundreds of pounds more towards national insurance because of the 1.25% increase to help social care. The government has confirmed the national insurance increase will start from April 2022.
- For those who earn £10,000 a year, they will have to pay a total of £57.
- Those on a £20,000 salary now paying £1,251 a year will pay £130 extra, a total of £1381
- People earning £30,000 a year now paying £2,452 will pay £255 extra, £2707 in total
- For those on a £40,000 salary currently paying £3,652, a rise of 1.25 percentage points means they’ll have to fork out £380 extra each year, bringing the total to £4032
- People who earn £50,000 a year now pay £4,852 – the tax hike means an increase to £5357, an annual increase of £505
As mention, those who reached state pension age don’t have to pay NIC. But this is about to change from April 2023. People who have reached the state pension age and over would have to comply with the 1.25% levy. “The increase will be used exclusively on health and social care, and will raise £36 billion over the next three years, the PM said.” The government has introduced a cap of £86,000 for social care regardless of their assets from 2023.
How we can help
If you require further HR support or any enquiries to do with payroll services, Happie Group will be happy to help you. We even handle HR paperwork on behalf of your company. Please contact us via email at firstname.lastname@example.org or call us on 02075376631
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