The following guide provides an introduction to National Insurance, how National Insurance began, what National Insurance is and potential ways for you to pay less National Insurance.
National insurance is effectively a compulsory tax (although not called a tax) which you pay during your working life in order to be eligible to receive certain state benefits i.e. a Pension.
NI has changed since its foundation, in the tax year 2024/25, National Insurance is used to pay for:
NI is a protected pot of money (commonly referred to as 'ring fenced') although the government can borrow against this fund. This has been the subject of controversy on a number of occasions, particularly in regard to State Pensions.
NI was first introduced in 1911 in the National Insurance Act 1911 after David Lloyd George and Herbert Asquith pushed to establish a similar system to that in Germany which provided all workers with access to illness and unemployment support.
In 1948, the Labour party galvanised the system with the creation of the welfare state, effectively amalgamating all state services and creating one payment system where workers Paid their Stamp
In 1975 the PAYE system was introduced with a view to simplifying payment and collection process.
NI is calculated based on your current situation and takes into account earning, pension and other factors (expatriation etc).
For most people, National Insurance is deducted straight from your Salary. Your employer will calculate your National Insurance Contributions (contribution mean compulsory in this instance) and also their employers contributions on your behalf. You may not not, and are unlikely to see in your pay statements, your employers contribution but this is a compulsory payment.
If you are self employed there are a number of ways to pay your national insurance, we suggest you consult a specialist Limited company accountant or your own accountant for the best advice to suit your situation
There are a number of ways you can pay less National Insurance and increase your take home pay. Salary sacrifice is one option whereby your employer can pay you less and invest the difference into a specific fund such as Child Care vouchers or a Pension. This is fully HMRC compliant and should, in our opinion be more widely practised by employers and more widely educated to employees.
As an example, a Pension Salary Sacrifice would provide, for a worker earning £22,000.00 per annum in 2024/25, a net gain of a little over £100.00 per year
| Normal Pal Example | Salary Sacrifice Example | |||
|---|---|---|---|---|
| Gross Pay | £22,000.00 | Gross Pay | £21,120.00 | |
| Pension Contribution | £880.00 | Pension Contribution | £0.00 | |
| National Insurance | £1,727.40 | National Insurance | £1,621.80 | |
| PAYE | £2,603.00 | PAYE | £2,603.00 | |
| Net Pay | £16,789.60 | Net Pay | £16,895.20 | |
Please remember the above is an example, we suggest you consult your employer, a specialist Limited company accountant or your own accountant for the best advice to suit your situation
Most people who work in the UK pay National Insurance Contributions or NICs. You will be expected to pay NICs up to pension age, slightly longer if self employed (Class 4 NICs may apply). You have to pay NICs if: