National Insurance Contributions (NIC) : What are the different classes of NICs and which should you pay?


Individuals have to pay NICs in addition to income tax on income earned above a certain limit. NI contributions are payable as they will build up your entitlement to certain social security benefits.

You will need to pay NIC if you are over the age of 16 and you are:

  • self-employed
  • or employed and your earnings are above a certain level.

You stop paying NICs when you reach state pension age.

Below is a list of the main classes of NICS and their Principle characteristics.

Class 1 Primary Contributions:

  • Paid by Employee.
  • Paid on percentage of earnings above a certain amount.
  • Stop at state pension age or at the end of employment.

Class 1 Secondary Contributions:

  • Paid by Employer.
  • Paid on percentage of earnings above a certain amount.
  • Stop when the employee is no longer employed.

Class 1A:

  • Paid by Employer.
  • Paid on percentage of cash equivalent of taxable benefits received.
  • Stop when the benefit is no longer received.
  • So paid on benefits like company car.
  • No class 1A NIC due if employee earns less than £8,500 a year.

Class 1B:

  • Paid by Employer.
  • Paid in accordance with the payee settlement agreement.
  • Stop when the benefit is no longer received.

Class 2:

  • Paid by Self-employed individual.
  • Paid based on a fixed weekly amount.
  • Stop when individual reaches state pension age or stops self-employment.

Class 3:

  • Paid by anyone who wishes to voluntarily contribute.
  • Paid based on a fixed weekly amount.
  • Stop when individual reaches state pension age, when individual chooses to stop or becomes ineligible.

Class 4:

  • Paid by Self-employed individual.
  • Paid based on a percentage of the profits of a business.
  • Stop when individual reaches state pension age or stops self-employment.

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