National Insurance Rates : Know How much Tax will I Pay

National Insurance is a fundamental component that is a part of the Welfare State of the United Kingdom. Basically, the work of National Insurance is that it acts as a form of social security. As the payment of National Interest contributes to the establishment of certain benefits of the state and its workers and their families. This scheme was introduced by the National Insurance Act 1911. Later, it was expanded by the Labour Government in the year of 1948. Numerous amendments have been made on National Interest over the years. At first, the National Insurance was a contribution to the insurance for illness and unemployment. Later on, retirement pensions and different other benefits were added. 

Recently, workers start to pay money on the National Insurance from the age of 16 and continue paying until they become eligible for the State Pension Policy. The workers that earn the amount lower than the appropriate limit do not have to pay the insurance according to the National Insurance Rates. Every year the limit changes for paying the National insurance Contributions

Self- employed person pays the tax under the National Insurance Threshold on a weekly or monthly basis at a specific rate. Records are kept for the contribution of each employee, protecting their entitlement to the benefits.

Now, let us check some different points related to National Insurance. These will help you to understand and know more about National Insurance.

Is it Necessary to Pay National Insurance?

It is necessary to pay the National Insurance if and only an employee earns a certain amount of money on their Personal Allowance per annum. 

Every employee working may not get a personal allowance of  £12, 500 every year. If he or she gets the given amount per annum, then only they have to pay the National Insurance Tax. The year along which the National Insurance is calculated is from 6th April to 5th April of the next year.

The personal allowance is an amount that is different from the gross income of an employee. The gross amount is the income that one totally earns before the tax or any other amount is taken away. 

You might get a lesser amount of personal allowance if you earn over £100,000. It also works in case you have a tax pending from the previous year. From the year of 2020/21, the limit of personal allowance will set at £12, 500. This will also index with the CPI (Customer Price Index) starting from there.

Minimum Limit Necessary for the Payment of National Insurance:

The National Insurance Rates change on a yearly basis. In the UK (United Kingdom) the tax system that everyone follows is the marginal rates of tax. Thus, it works on the creation amount of National Insurance Threshold. One does not pay a similar amount of tax on everything he or she earns. 

The National Insurance Rates depends according to the points given below.

  • If you earn £12,500 per annum, then the National Insurance Rate is 0%.
  • On the earnings than ranges from £12,500 to £50,000, the rate of tax that an employee has to pay is 20% on his personal allowance.
  • One has to pay a tax of 40% if he or she earns £50,001 to £150,000. 
  • And on the earnings, more than £150,001 or more an employee has to pay a tax of 45%.

Another important feature is that if by any chance a certain amount of allowance or payment of too much tax is made by you, then a certain amount reduces. Like if the earning of an employee is over £100,000, then the standard personal allowance i.e. £12,500 reduces by an amount of £1 or £2 of the total income of the employee.

It means if the earning of an employee is £ 52,000 per annum, then he or she has to pay 

  • For the first £12,500, the amount is 0.
  • For the next amount i.e £37,500, the rate is 20% that amounts to £7, 500.
  • On the next £2000, it is 40% (£800)

From the year of 2019, the Welsh government sets all the rates. The rates are similar to that of England and Northern Ireland.

Minimum Amount One Should Earn to Pay the National Insurance:

The amount of National Insurance is taken from the yearly amount that an employee earns. It helps to build an entitlement of a specific amount of savings. An employee needs to pay the Class 1 NICs on their earnings. A secondary contribution is to be made amounting to 13.8% of the earnings ranging above £166 per week. No limit greater than National Insurance payments is present. 

Check out the important features given below:-

  • One has to pay the National Insurance contribution of £166 every week. 
  • From the year 2019-20, the limit has increased by up to 12% i.e £962 per week.
  • If an employee earns £963 every week, then automatically there is a reduction of rate up to 2%.

That means that:-

  • No tax on the first £166 if an employee earns £1000 every week.
  • In the next £796, the amount of tax is £95.52 (12%).
  • £0.76 (2%) on the next £38.

National Insurance Rate Chart

Letter Category £118 – £166 every week £166 – £962 every week Range greater than £962 every week
A 0% 12% 2%
B 0% 5.85% 2%
C N/A Not necessary Does not require
H 0% 12% 2%
J 0% 2% 2%
M 0% 12% 2%
Z 0% 2% 2%

Almost every employee in the UK follows this rate chart for paying National Insurance. Everyone has to pay the National Insurance tax. It is mandatory, else the employee has to face many issues.

Major Differences Between Gross Pay and Net Pay:

The amounts that an organization credits on the account of its employees before deduction of any taxes, is known as the Gross Pay. It is also known as the annual salary of an employee.

The amount that any employee gets for working in an organization after deduction of all the taxes is known as the Net Pay. The Net pay is the take-home payment i.e the payment that an employee receives in hand every month.

The Gross pay amount before deduction of different services and taxes and the Net pay amount after deduction of taxes is available on each and every employee payslip. The amount that is deducted for the tax is also written there.

The Process to Pay National Insurance:

So by now, you may have an idea about the National Insurance Rates. If you have an annual income of more than Personal Allowance, then only you have to pay this tax. Generally, the organization you are working for looks after this matter. After deduction of the different taxes, you get your in-hand salary in your account. 

You can easily pay the National Insurance Tax with the help of the PAYE (Pay As You Earn) system. If by any chance you see that you have paid a lot of tax at the end of a year, then you can claim a refund.

The total method depends on the way by which you get paid from your company. It can be a monthly or weekly basis. Getting money back from any kind of National Insurance becomes almost impossible unless there is any kind of mistake or suddenly your earnings fall in a year.