Published 2 April 2024 by Matthew Coates
Like most taxes, there is an amount you can earn before you pay National Insurance (NIC). This is called an allowance. You do not pay NIC on anything you earn up to the value of this allowance. Once your earnings reach this amount, you pay NIC only on the earnings above it. For example, from 6 April 2024 the allowance is £242 per week, or £1,048 per month. This means, if you’re weekly paid you will not pay NIC unless you earn more than £242 in the week you are paid. Or if you’re monthly paid, it’s £1,048.
The rate you pay depends on your earnings. If you earn up to £967 per week, you will pay 8% NIC on the difference between £242 and £967 (£725). Or if you’re monthly paid, it’s 8% on the difference between £1,048 and £4,189 (£3,141).
If, however, you earn more than £967 per week, or £4,189 per month, then the earnings above those figures will be subject to only 2% NIC, not 8%.
Here’s some examples:
A weekly paid employee earns £900 per week. NIC is due on earnings between £242 and £900. That’s earnings of £658. As the earnings are below £967, the rate is 8%, and therefore the NIC due is £52.64.
A weekly paid employee earns £1,000 per week. NIC is due first on earnings between £242 and £967 at the rate of 8%. That’s £725 at 8%, which is £58.00. Additionally, there is NIC due at 2% on the difference between £967 and £1,000 – that’s additional earnings of £33. At 2% that’s a further 66pence. Added to the £58, that’s a total NIC charge of £58.66.
A monthly paid employee earns £2,200 per month. NIC is due on earnings between £1,048 and £2,200. That’s earnings of £1,152. As the earnings are below £4,189, the rate is 8% and therefore the NIC due is £92.16.
A monthly paid employee earns £4,500 per month. NIC is due first on earnings between £1,048 and £4,189 at the rate of 8%. That’s £3,141 at 8%, which is £251.28. Additionally, there is NIC due at 2% on the difference between £4,189 and £4,500 – that’s additional earnings of £311. At 2% that’s a further £6.22. Added to the £251.28, that’s a total NIC charge of £257.50.
To understand more about NIC, there is some terminology you should know:
- Lower Earnings Limit (LEL) – the rate at which an employee gets the benefits of paying NIC (such as a credit to their state pension fund) without actually paying NIC.
- Primary Threshold (PT) – the point at which employees start to pay NIC.
- Secondary Threshold (ST) – the point at which employers start to pay NIC.
- Upper Earnings Limit (UEL) – where the reduced rate of NIC begins to take effect
There are other thresholds you may need to be aware of if you are employing apprentices, are a freeport or paying veterans. You can find out more about these here.
If you’re still unsure, you can use HMRC’s online calculator to work out your national insurance and see how it is calculated. You can find that calculator tool here.
If you are a company director, your national insurance is calculated differently and you can find out more about directors NIC here. Alternatively, you can use HMRC’s online tool for directors NIC here.