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Money, tax and benefits

Money, tax and benefits

National Insurance

You pay National Insurance contributions (NICs) to build up your entitlement to certain social security benefits, including the State Pension. The type and level of NIC you pay depends on how much you earn and whether you're employed or self employed. You stop paying NICs when you reach State Pension age.

Who pays National Insurance?

You pay NICs if you are an employee or self-employed and you are aged 16 and over, providing your earnings are more than a certain level. You stop paying NICs at State Retirement age. This is currently 65 for men and 60 for women but will gradually increase to 65 for women over the period 2010 to 2020.

Your National Insurance number

Your National Insurance number (NI number) is your own personal account number. The number ensures that the National Insurance contributions and the tax you pay are properly recorded on your account. It also acts as a reference number for the whole social security system.

Who uses your NI number?

The only people you should ever give your NI number to are:

  • HM Revenue & Customs (HMRC)
  • your employer
  • Jobcentre Plus, if you claim Jobseeker's Allowance
  • your local council, if you claim Housing Benefit

Entitlement to many benefits depends on your National Insurance contribution record (see 'Benefits that depend on NICs' below) so it's very important not to give your number to anyone else.

You will also be required to provide your NI number if you open an Individual Savings Account (ISA).

How to get an NI number

If you don't already have a NI number you must apply for one:

  • as soon as you start work
  • as soon as you or your partner claims benefit

To be able to apply you must be:

  • over 16 years of age
  • resident in Great Britain (England, Wales or Scotland)

If you are a parent or guardian and receiving Child Benefit, any children you care for will automatically get a card showing their NI number just before they reach the age of 16.

To apply for a NI number you will need to telephone the Jobcentre plus NI allocation service helpline on 0845 600 0643. They will make sure you need a number and arrange for you to undertake an evidence of identity interview.

Evidence of identity interview

The interview will usually be one-to-one (unless, for example, you need an interpreter). The interviewer will ask you questions about your background and circumstances.

The interviewer may also ask you to fill in an application form.

If you don’t have any official documents

If you haven't got any official documents you still have to go to the interview. You might be able to prove your identity with the information you give at the interview.

National Insurance Rates

The following amounts apply for the 2008-2009 tax year:

If you're employed

  • if you earn above £105 a week (the 'earnings threshold') and up to £770 per week you pay 11 per cent of this amount as 'Class 1' NICs
  • you also pay one per cent of earnings above £770 a week as Class 1 NICs
  • you will pay a lower amount as an employee if you are a member of your employer's contracted out pension scheme

If you're self-employed

  • you pay 'Class 2' NICs at a flat rate weekly amount of £2.30
  • you also pay 'Class 4' NICs as a percentage of your taxable profits - you pay eight per cent on annual taxable profits between £5,435 and £40,040 and one per cent on any taxable profit over that amount
  • if your earnings in the 2008-2009 tax year are expected to be less than £4,825 then you may be entitled to the Small Earnings Exception (SEE), meaning you don't have to pay any Class 2 NICs - you can apply for SEE for the 2008-2009 tax year on form CF10

Benefits that depend on NIC contributions

Your entitlement to the following benefits and/or the amount you can get will depend on your (or in some cases your spouse or civil partner's) NIC contributions:

  • Contribution based Jobseeker's Allowance (Class 1 NICs only)
  • Incapacity Benefit (if you can't work for long periods due to illness or injury)
  • State Pension
  • additional State Pension (Class 1 NICs only)
  • Widowed Parents' Allowance
  • Bereavement Allowance
  • Bereavement Payment

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