What are the different classes of National Insurance?

In a nutshell

The National Insurance contributions that employees or employers pay depend on various factors. The different classes below determine what type of contribution employees or employers must make.

Class 1: Employees and employers

• Qualifying criteria: Employers and employees earning above a certain threshold.
• Purpose: A type of Income Tax for the UK government.
• Calculation: Depends on employee income

Class 1 NICs are divided into three categories:

1. Class 1A: Paid by employers on employee benefits and perks.
2. Class 1B: Paid by employers as part of PAYE.
3. Class 1C: Historically used for employee contributions under special circumstances but no longer in use.

Class 2: Self-employed

Applies to self-employed individuals with profits above a certain threshold. Class 2 contributions are a fixed weekly amount

• Qualifying criteria: Self-employed earning above a certain threshold.
• Purpose: Contribute to entitlement towards state benefits like the state pension.
• Calculation: Fixed weekly amount. Currently at £3.45 a week.

Class 3: Voluntary contributions to fill National Insurance contribution gaps

• Qualifying criteria: Voluntary but available only to people with gaps in their National Insurance contributions.
• Purpose: Fill gaps in National Insurance contributions in order to qualify for state benefits.

Class 4: Self-employed

Applies to self-employed individuals with profits above a certain threshold. Based on a percentage of the individual’s annual profits.

• Qualifying criteria: Self-employed earning above a certain threshold.
• Purpose: A type of Income Tax for the UK government.
• Calculation: Based on profits.

Sources

• Rates and allowances: National Insurance contributions – gov.uk