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UK National Insurance

By Edited Nov 13, 2013 0 0

Information on UK National Insurance

The UK National Insurance contribution is a mandatory contribution paid by employees, employers, and even self-employed citizens of the UK. Some are also permitted to make voluntary contributions to make up for any gaps in their contribution record. In the long run, these contributions will benefit individuals upon death, unemployment, retirement, disability, and maternity. Basically this is a tax that is implemented by the UK government and is the second biggest source of tax that can reach as much as 20% for individuals in the middle-income bracket. Paying such insurance builds a citizen's privilege to certain benefits, which includes the State Pension. The amount of these contributions is dependent on how much an individual earns whether employed or self-employed. Once a citizen reaches the age to be receiving State Pension, then that is when he or she stops paying for these contributions.


History of UK National Insurance

The National Insurance is a contributory system in the UK the was first created for insurance against unemployment and illness, and then later on expanded to retirement pensions and other benefits. This insurance first came about with the National Insurance Act 1911 and was then stretched out by the UK government in 1946 with the Clement Attlee.


Who is required to pay?

UK citizens who are employed, self-employed, are aged 16 years and above and are earning a certain level of income are required to to pay contributions to the UK National Insurance. These contributions are required to be paid until individuals reach State Pension age, with is the age of 65. There are also individuals who may choose to pay for these contributions voluntarily. Reasons for this include that the individual isn't working and isn't claiming any state benefits, second is that the individual hasn't paid enough contributions in a year for it to count for State Pension or other benefits, and last could be for citizens who live out of the UK and still want to maintain any privileges to state benefits.


UK National Insurance Number

A National Insurance number is provided to those who pay for contributions. This is similar to an account number wherein all the tax and contributions paid are correctly recorded. In addition, it works like a reference number for the UK social security system. This National Insurance number will always remain the same regardless if an individual gets married, leaves the country, or even changes names. Depending the contribution record, an individual will have a right to different state benefits. Citizens without a National Insurance number can easily apply for one. 


Why You Need a National Insurance Number

The UK National Insurance number is required for employment, HM Revenue & Customs, Department for Work and Pensions, local council for claims of Housing Benefit, and the Student Loan Company for those who apply for a student loan. When opening an individual savings account, the National Insurance number is also required. Those with this number should make sure to keep it safe and to avoid giving it to unnecessary people. Keeping this number secure will avoid any chances of identity fraud.


State Benefits

Any state benefits and entitlement is all dependent on the amount of UK National Insurance contributions made that is indicated in the records. There are also some situations wherein it depends on the contributions of your spouse or civil partner. State benefit inclusions are contribution-based employment and support allowance, contribution-based jobseeker's allowance, bereavement allowance, and State Pension. Depending on the contributions made, the benefits can be found on a complete list of State Benefits at the UK National Insurance site.


Contribution Classes

The amount of on UK National Insurance contributions to be paid will depend on the the type of employment and income earned. This is segregated into different contribution classes. The actual rates are shown below for the year 2011 and 2012.


Class 1

Those who are employed are required to pay Class 1 UK National Insurance contributions. These contributions are subtracted from the salary given by the employer. Employed individuals making more than ¬£139-¬£817 weekly will pay 12% of the amount earned between this bracket. Those earning more than ¬£817 will be paying an additional 2% of all the earnings in excess of this amount. 


Class 2 and Class 4

Self-employed individuals fall under Class 2 and Class 4. The contributions required for Class 2 is a payment of £2.50 every week. Class 2 contributions are due on the 31st of January and July and can be paid through direct debit. Those who are self-employed and earning only an annual income of£5,315 or less are often not required to make contributions. Individuals who fall under Class 4 have to pay contributions that is a percentage of annual taxable income. Any earnings that fall between £7,225-£42,475 must contribute 9% of the profits falling under this bracket. Earnings that go over this amount require an additional 2% contribution. Class 4 contributions are paid along with Income Tax.


Class 3

Those who pay voluntary UK National Insurance contributions fall under Class 3. These contributions are a steady rate of £12.60 weekly and can be paid through direct debit or through quarterly bill. For those who have gaps in contribution, an option to pay one-off payments is also possible.


Other UK National Insurance Contribution Rates

In special cases, there are also other rates that are used. Such cases include a minimized rate for a married women or a widow, a share fisherman special rate, and volunteer development workers special rate. Depending on what applies to you is the rate you should be contributing.


UK National Insurance and Income Tax

Those who pay UK National Insurance contribution often also has to pay income tax. Income tax is a tax imposed on earnings above a certain amount, known as taxable income. This tax varies depending on the amount of income you earn. This income tax can be reduced with allowances and reliefs available. 


Although it may seem like a lot of contributions have to be made for the UK National Insurance, in the long run it is one that is beneficial for all citizens. If you are living in the UK make sure you get all the information you need about this so that you don't miss out in any future State Benefits that you are entitled to.


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