What is national insurance used for? UK tax contributions explained - how much do I pay and where does it go

Boris Johnson has set out plans for an increase in national insurance contributions to raise funds for social care across the UK

Boris Johnson is set to announce a rise in national insurance contributions to raise funds for social care across the UK. (Pic: Shutterstock)

The prime minister remains defiant on introducing a rise in national insurance contributions for millions of workers across the UK.

Boris Johnson has come under fire yet again for standing by his plans to raise NI payments from April 2022 to fund health and social care.

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Any increase in national insurance is implemented by the Tories would see them row back on promises back in the party’s 2019 manifesto for the general election.

The proposed increase in national insurance contributions each month has led to many wondering where their monthly payments go and for what purpose.

Here’s a look at what national insurance contributions are used for by the UK government.

What is national insurance for?

National insurance contributions are made to qualify for certain benefits from the UK government, which can include:

  • basic state pension
  • additional state pension
  • new state pension
  • contribution based jobseeker’s allowance
  • contribution based employment and support allowance
  • maternity allowance
  • bereavement support payment

Does everyone contribute towards the same benefits?

There are three classes which the UK government uses to help work out who makes contributions to each benefit or pension.

  • Class 1 - employees make contributions to all seven benefits and pensions.
  • Class 2 - self employed workers contribute to five of the seven, with no additional state pension or contribution based jobseeker’s allowance.
  • Class 3 - voluntary contributions go towards basic state pension and new state pension only.

Who pays national insurance?

Payments are made by people who are 16 years of age or over and are either an employee earning more than £184 a week or self employed making a £6,515 profit or more a year.

There are different types of national insurance classes, which is linked to how much you pay depending on employment status and how much you earn.

There is the option to pay voluntary contributions to avoid gaps in national insurance record while anyone earning between £120 and £184 a week has their record protected.

National insurance contributions stop when you reach state pension age, currently 66, though rises to 67 and 68 depending on when you were born after 5 April 1960.

How are national insurance payments calculated?

National insurance is made up of contributions deducted from their pay and those paid by their employer and depends on national insurance category and earnings.

National insurance categories:

  • A - All employees apart from those in groups B, C, J, H, M and Z in this table
  • B - Married women and widows entitled to pay reduced National Insurance
  • C - Employees over the State Pension age
  • J - Employees who can defer National Insurance because they’re already paying it in another job
  • H - Apprentice under 25
  • M - Employees under 21
  • Z - Employees under 21 who can defer National Insurance because they’re already paying it in another job

Current employee national insurance rates:

  • Category letter - £120 to £184 (£520 to £797 a month) - £184.01 to £967 (£797.01 to £4,189 a month) - Over £967 a week (£4,189 a month)
  • A - 0% - 12% - 2%
  • B - 0% - 5.85% - 2%
  • C - N/A - N/A - N/A
  • H - 0% - 12% - 2%
  • J - 0% - 2% - 2%
  • M - 0% - 12% - 2%
  • Z - 0% - 2% - 2%

A category A employee will pay nothing for the first £184 earned, 12% on earnings between £184.01 and £967 and 2% on earnings over £967.

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