National Insurance Contributions

National Insurance contributions are sums of money that you pay to the National Insurance from your earnings. The amount that you are required to pay depends on how you earn your money and how much you earn. You are required to pay National Insurance contributions in order to ensure that you are entitled to receive certain state benefits if you need them, and the State Pension when you retire. The contributions you make are not direct savings for your own pension: the contributions that taxpayers make today are paying for the pensions of today. The pensions of the future will be paid for by the taxpayers paying contributions in the future. Anyone employed or self employed who earns more than the Lower Earnings Limit (see The Earnings Scale) on the government’s scale of earnings is required to pay National Insurance (N.I.) contributions.

Currently you must make N.I. contributions for ninety percent of your working life to be entitled to claim a full State Pension. Your working life is calculated as the tax years of your life between age sixteen and the State Pension Age. Every tax year that you pay National Insurance contributions goes onto your National Insurance record. When you come to retire, the number of qualifying tax years on your record dictates the percentage of the full State Pension to which you are entitled. The tax year goes from the 6th April to the 5th April the following calendar year.

If you reach retirement age on or after the 6th April 2007 you need only thirty qualifying years to claim a full State Pension. A qualifying year is defined as a tax year of your working life when you earned enough to pay National Insurance contributions, or were credited as having paid National Insurance contributions. You have to contribute a certain amount during the year for it to count as a qualifying year. If you earn £4,524 or more during the tax year 2007/2008, and pay or are credited with National Insurance contributions on this amount, the tax year 2007/2008 will count as a qualifying year for you.

If you are required to pay contributions but fail to do so, you will have to pay late contributions and you may incur a fine. If you are employed then it is the responsibility of your employer to deduct your contributions. If your employer has evaded payment then the offence is theirs: however, if you are found to be evading payment of your contributions, or to be in league with your employer who is avoiding paying them, you may face prosecution. If you have failed to pay N.I. contributions then contact a financial advisor at your local Citizens Advice Bureau (CAB) for help.

You are required to pay N.I. contributions if you are living and working in the United Kingdom and are between sixteen years of age and State Pension Age (see State Pension Age). If you are a UK citizen working abroad you may still need to pay N.I. contributions depending on your situation. Contact your local CAB for advice on your circumstances. If you are working in the UK but are not a UK citizen, you may also be required to pay N.I. contributions. For more information see State Pension for Foreigners.

If you are employed, your N.I. contributions should be deducted from your gross salary automatically by your employer. You will have to pay N.I. contributions on any earnings which fall between the Lower and the Upper Earnings Limits. The Lower Earnings Limit is currently set at £4,524 a year, and the Upper Earnings Limit at £34,840 a year. If you have more than one job with a salary which falls between these limits you will have to pay N.I. contributions on each salary. If you earn more than the Lower Earnings Limit but less than the Primary Threshold you are credited as having paid N.I. contributions without having to actually pay them. If you have more than one job with a low salary you may not need to pay any N.I. contributions, since your separate salaries are seen individually and not collectively. If you earn less than the Lower Earnings Limit you are not required to pay N.I. contributions, but you must remember that you are thus not building up entitlement to state benefits or a State Pension. For more information on the earnings scale, including definitions of the Lower and Upper Earnings Limits and the Primary Threshold, see The Earnings Scale. If you are employed, your National Insurance contributions should be taken off your gross earnings automatically, so you will not have to make your contributions independently. If you are unsure about how your National Insurance contributions are made, ask your employer or contact the National Insurance helpline on 0845 302 1479.

If you are currently unemployed but registered as a job seeker, or unemployed because you are ill, your National Insurance contributions might be credited to you for the tax year. You may also be entitled to credits for time spent training, working abroad, ill, caring for others, on jury service, on maternity leave or finishing secondary school. For more information see National Insurance Credits and Home Responsibilities Protection.

If you are self-employed you are required to pay N.I. contributions on your earnings unless they are very low and you have a certificate which exempts you from needing to make N.I. contributions.

Be aware that years you spend at University or travelling the world will not count as qualifying tax years on your National Insurance record. If you know that you have gaps in your National Insurance record, you might wish to consider filling these gaps by making voluntary National Insurance contributions. You may also receive a letter from Her Majesty’s Revenues and Customs (HMRC) informing you of gaps in your record and giving you the opportunity to make voluntary contributions. Usually you must pay these voluntary contributions within six tax years of the tax year gap you wish to fill. Remember, you do not have to fill any gaps on your National Insurance record, but these gaps may result in a reduced State Pension on retirement. Contact HMRC for details and assistance.