How to Calculate NI

Phone 0843 596 4157 if you need help to calculate how much National Insurance you should be paying for each tax year.

NI (National Insurance) is a type of financial contribution which most workers must pay if they are earning above a certain amount. Your NI contributions help you to qualify for state benefits, including the State Pension. This is why it is important to make sure that you are paying enough in National Insurance contributions. Read the guide below to find out how you can check if you are paying the right amount of NI.

How to Calculate NI as an Employee

Employees who earn an amount between the “lower earnings limit” and the “primary threshold” usually do not have to pay NI, and they should receive National Insurance credits. Those earning an amount between the “primary threshold” and “upper earnings limit” will have to pay 12% of their weekly earnings as National Insurance. Anyone earning above the “upper earnings limit” will have to pay 2% of their weekly earnings.

These thresholds change every tax year. HMRC will provide calculation tables to employers, as they are responsible for calculating the amount of National Insurance payable for each employee. As an employee, your employer will deduct NI payments from your earnings before they pay you. Class 1 National Insurance contributions are taken automatically via the PAYE system, along with any Income Tax if you earn more than the annual Personal Allowance. You won’t need to calculate it yourself.

However, you may want to check that you are paying the right amount. If you overpay National Insurance contributions, then you cannot get a refund for them. If you have not been paying enough, then you will have to pay more to complete the year’s worth of contributions in order for it to qualify. You can calculate how much you should be paying in Class 1 contributions by checking the rates for your earnings bracket. Find the category letter on your payslips and work out the percentage of your earnings that you should have been paying. You can then check this against how much National Insurance you have paid on each payslip.

How to Calculate NI in Self-Employment

If you do not work for an employer and you are self-employed, then you will still need to pay National Insurance contributions according to your earnings. However, the types of NI contributions are different from the ones for employees. They will depend on your profits, which you must calculate for your annual self-assessment tax return by deducting your expenses from your income. If you earn more than the lower threshold, you will have to pay Class 2 contributions. This is a smaller set amount each week. If you earn more than the higher threshold, then you have to pay Class 4 contributions. This is a rate of 9% on profits up to a certain amount, then 2% on profits over the upper limit. You will need to check the NI rates for each tax year to see if you have been paying correctly.

How to Calculate NI as an Employer

Employers have to use the PAYE system to calculate National Insurance contributions, pension contributions, and Income Tax deductions from their employees’ wages. In addition, employers must pay Class 1A and Class 1B contributions on employee expenses and benefits once a year. The employer pays these National Insurance contributions as part of their PAYE bill. They must report and pay them at the end of every tax year. Class 1A contributions are for work benefits given to employees, such as a company mobile phone or laptop. Class 1B contributions are paid if the employer has a PAYE settlement agreement. This will be one annual payment which is made to cover all tax and National Insurance contributions on irregular expenses or employee benefits for that year. There is guidance on running your payroll on the government website.

How to Calculate Voluntary NI Contributions

To be eligible for the State Pension at all, you must have a minimum of 10 full years of National Insurance contributions. The requirement to receive the full State Pension is now 35 full years of NI contributions. If you have gaps in your National Insurance record, you might want to fill them in by making Class 3 contributions. These voluntary contributions are made to top up incomplete years so that they qualify. You can only pay them for up to six years after the tax year you want to complete. You can also only make voluntary contributions if you are not working and are exempt from Class 1 or Class 2 contributions, or if you live or work abroad but still want to be eligible for certain benefits in the UK. Check your National Insurance record online with your Government Gateway account to identify any incomplete years. Then check the rates for the year in question to calculate how much you would have to pay to make up the difference and turn it into a full qualifying year of contributions.