What are Class 1 National Insurance Contributions?
If you work as an employee you are required to pay class 1 national insurance contributions on your income from employment, including your salary and any bonuses you receive.
Class 1 NIC’s are based on your earnings from PAYE income only and are made up of a combination of employee salary deductions and employer payments.
The class 1 contributions paid by an employee is known as the primary contribution and the part paid by the employer the secondary contribution.
HMRC uses employee and employer national insurance rates and thresholds to calculate class 1 national insurance and it’s collected by employers at the same time as any income tax deductions.
There are also two types of class 1 NIC’s called class 1A and class 1B which are payable by employers if they give employees any qualifying benefits or expenses.
By making class 1 employee national insurance contributions you become eligible for specific state benefits so it’s worth taking a few minutes just to check that everything is in order and you are paying the right amount to HMRC.
How much are employees class 1 national insurance contributions?
The sum of class 1 you will pay as an employee will be worked out by using your income figure and the applicable class 1 percentage rate.
Class 1 national insurance contributions are typically calculated on a weekly or monthly basis depending on the frequency of your employer’s payments.
Class 1 NIC’s on a weekly basis:
On first £242: Zero
On income between: £242 and £1048: 8%
On amount above: £967: 2%
Class 1 NIC’s on a monthly basis:
On first £1,048: Zero
On income between £1,048 and £4,189: 8%
On amount above £4,189: 2%
The amount of class 1 you pay in a given week or month is not influenced by the payments you made in prior weeks or months within the same tax year unlike income tax under PAYE which is paid on a cumulative basis.
What are the class 1 employees thresholds?
Depending on the level of your income class 1 NIC’s are payable after you have earned a particular amount of PAYE income.
How much you pay is variable based on the different class 1 thresholds:
Lower earnings limit (or LEL for short): £123 weekly or £533 monthly
If your earnings fall below the lower earnings limit you are not required to pay any class 1 national insurance contributions.
Importantly you will not be considered as having made any NIC payments, and as a result, no contributions will be recorded on your national insurance record.
If your income exceeds the lower earnings limit but falls below the primary threshold you will be considered as having made national insurance contributions even if you haven’t made an actual payment.
This will mean your NIC record should reflect contributions made at no cost to you.
Primary threshold (or PT): £242 weekly or £1048 monthly
If your income falls within the range of the primary threshold and the upper earnings limit you will be subject to the standard rate of national insurance of 10% on the portion of your earnings that exceeds the primary threshold.
Secondary threshold:
If your income exceeds the secondary earnings threshold your employer will be responsible for paying the standard rate of employer’s national insurance on those earnings.
It’s important to note that this additional contribution is separate from the employee’s own national insurance contributions.
Upper earnings limit: £967 weekly or £4189 monthly
If you earn above the upper earnings limit the national insurance rate decreases. For earnings exceeding this limit employees pay a reduced rate of 2%.
Employers on the other hand will still pay the standard rate of 13.8% for their portion of national insurance contributions on these earnings.
We have listed the most common employee class 1 thresholds but there are specific rules and regulations regarding apprentices, veterans, and freeports that are not addressed in this guidance.
How do I pay class 1 national insurance contributions?
Class 1 national insurance is deducted by your employer(s) automatically each time you are paid by them.
Your employer is then responsible for sending both your primary class 1 contributions and there secondary contributions as an employer to HMRC.
HMRC then records the contributions on your record which can be checked via .GOV.
Can I check my class 1 national insurance record?
It is best practice to monitor the amount you have contributed to national insurance and determine if there are any missing payments or credits from past tax years and currently.
You have the option to review your national insurance record digitally through the .GOV government portal.
If you prefer a physical copy you can request a paper version of your National Insurance Statement by sending a written request to the following address:
National Insurance contributions and Employers Office HM Revenue and Customs BX9 1AN.
Can I pay class 1 NIC’s voluntarily?
If you have any gaps in your class 1 national insurance contributions you have the option to fill them by making class 3 ‘voluntary’ contributions.
Class 3 voluntary NIC’s are used to cover the basic and new state pension.
Voluntary contributions can be made under certain circumstances including:
- You are currently not employed.
- You are not eligible for national insurance credits.
- You are not responsible for or exempt from paying class 1 or class 2 contributions.
- Your contributions for a particular year do not meet the requirements for state pension entitlement.
- You reside outside of the country.
Typically you are only able to make payments for any missing contributions in your national insurance history from the previous six tax years.
HMRC let’s you pay class 3 online and there’s an option to establish a recurring payment to address any gaps in the current tax year and future tax years.
Do I pay class 1 if I am employed and self employed?
The answer is yes if you earn enough through PAYE you will still need to make class 1 contributions but only on your income from PAYE employment.
Any self employed income may be separately liable to class 2 and class 4 NIC’s depending on the level of your self employed income.
Class 1 NIC for employers
If you run a business and have employees you will be required to make class 1 national insurance contributions based on their earnings.
The ‘secondary threshold’ is the term used to refer to the point at which employer’s NICs come into effect and is applicable to all employees who are 21 years old or older, with the exception of apprentices who are under the age of 25.
The rate for employers class 1 NIC’s is set at 13.8% and the contributions made are classed as a tax deductible business expense.
Employers are also responsible for class 1a and class 1b contributions for some employees who receive certain types of work related P11d benefits and expenses.
What is employers class 1A NIC’s?
Class 1A NIC’s are paid by an employer only for work benefits provided to employees for example a health benefit, company car or mobile phone.
An employer must make class 1A contributions for payments exceeding £30,000 made to employees upon termination of their employment, such as redundancy payments (‘termination awards’).
Class 1A national insurance contributions for termination awards are only applicable if contributions haven’t already been made on that income.
Employers should submit NI contributions for work benefits no later than 22 July (the online submission deadline) each year to cover the previous tax years contributions.
What is employers class 1B NIC’s?
Class 1B national insurance is again only paid by an employer in specific circumstances where they have a PAYE settlement agreement in place with HMRC that relates to benefits in kind and expense payments.
The class 1B type of employer contribution covers the tax amount that would typically be the employee’s responsibility.
What are national insurance credits?
National insurance credits are made available to individuals to help maintain a complete national insurance record without gaps.
Claiming national insurance credits are important in cases where you are not actively making contributions to national insurance.
Applying for National Insurance credits plays a vital role in accruing “qualifying years” that contribute to your overall eligibility for the state pension and certain other benefits.
You can use our national insurance credits guide to find out more about the qualifying criteria and how to make a claim.
Employer payroll software and national insurance
All businesses running payroll need to adhere to HMRC’S RTI and pension auto enrolement procedures and regulations.
Choosing a suitable payroll software option can aid in achieving HMRC compliance and in keeping employees payments accurate and timely.
Payroll software providers can help businesses manage their national insurance and payroll responsibilites so it’s worth asking your accountant and doing your own research to find the best fit for your payroll needs.
