Over recent years many changes have taken place in this area. It is a worthwhile exercise ensuring all liabilities are covered before records are inspected, thereby avoiding penalties, and to assist in planning to reduce the costs.

The details below will give some insight into the operation of the main rules.
The rates stated are those for 2023/24.

Classes and Rates of NIC
Exemption and exceptions

Classes and Rates of NIC
National Insurance Contributions (“NIC”) are levied under four main categories and rates.

CLASS 1 – “non contracted out” contributions paid by employees (“primary” contributions) and employer (“secondary” contributions):
Employee – 12% payable on weekly earnings between £242 and £967. ALL EARNINGS ABOVE THIS AMOUNT ARE CHARGEABLE AT 2% WITHOUT LIMIT.
Employer – 13.8% payable on weekly earnings above £175 and on all liabilities under Classes 1A and 1B.
>>> NOTE: this is a huge burden on employers.

CLASS 2 – paid by those in self-employment at a flat weekly rate of £3.45 (subject to claim for “Small Earnings Exception” / “Small Profits Threshold”; see exceptions below)

NOTE >>> Class 2 is now collected via your self assessment Tax Return. Payments via Direct Debit have stopped.

CLASS 3 – voluntary contributions paid by those with no legal obligation to pay but
who wish to preserve their rights to certain state benefits, e.g. the state basis
pension. Charged at a flat weekly rate of £17.45.

CLASS 4 – charged to the self-employed as part of their self assessed Tax Return calculations:
9% of profits between £12,750 and £50,271
2% of all additional profits WITHOUT LIMIT


> Classes 1A and 1B National Insurance are special classes of charge levied on employers for certain perks/benefits given to employees and on any “PSA”, a PAYE Settlement Agreement.

It is possible to reduce the impact of this increase by effective advanced planning. As with all planning it is better to start it sooner rather than later. Contact us for more details.

Two departmental sections are involved in Social Security. The National Insurance Contributions Agency (part of HMRC), which handles collection of National insurance, and the Benefits Agency which oversees claims paid out.

NIC are usually payable monthly with interest/penalties being chargeable if paid late. Other payment periods (quarterly, annually, irregular) are negotiable and must be discussed/agreed by HMRC.

Exemption and exceptions
If self employed earnings are expected to be less the “Small Earnings Exception” (SEE) limit (which varies from year to year), Class 2 NIC need not be paid in advance. By applying for SEE before the start of the tax year no Class 2 contributions will be demanded until the true profits of the year are calculated and an accurate liability established.

Deferment may also be granted if maximum NIC are already being paid from a source of PAYE income. This may be of help to those who, for example, have multiple employments/self employments, one office highly paid and other positions paying lower salaries.