National insurance contributions (NICs) were created to provide funding for the Social Security system – retirement benefits such as the state pension, Universal Credit and so on. You need to pay NIC to be able to claim some of these benefits and if you don’t have a full national insurance record you may not be eligible for the full amount.
NICs are only paid on earnings from employment and self-employment. They are paid from the day you turn 16 and will stop being paid when you reach pensionable age. So, if you work past your pensionable age you shouldn’t have to pay national insurance. Equally note that it is not paid on other types of income, such as dividends or bank interest, or investments such as rental properties.
Types of national insurance
For employees the key type of national insurance is called Class 1 primary national insurance which is paid on earnings from employment. Class 1 secondary national insurance is paid by employers on these earnings (it is these employer contributions that account for the majority of the revenue raised from NIC)
For self-employed individuals (which may be relevant for those locums, clinicians with private practice or GP partners) the following are relevant:
- Class 2 national insurance is paid by self-employed people if applicable and is charged at a flat weekly rate which is currently £3.45 per week. This though was phased out from April 2024
- Class 4 national insurance is paid on profits from self-employment
- Class 3 national insurance is a voluntary payment which you can pay when you are not working to make up gap years. It should be noted though that if you take time away from work to bring up children then you will get credit for those years in your state pension record.
Calculating your employee national insurance
Class 1 Primary contributions are paid by employees on earnings in an ‘earnings period’ which for most UK employees including doctors is a monthly earnings period.
For employees who receive their remuneration monthly no NIC is charged on the first £1,048 per month of an employee’s earnings. This is called the ‘primary threshold’ and you can think of it like a personal allowance but for NIC.
On earnings between £1,048 per month and £4,189 per month (ie a maximum of £3,141), the main rate of Class 1 NIC is 8%. The monthly limit of £4,189 is called the ‘upper earnings limit’. Employees also pay Class 1 NICs at the additional rate of 2% on earnings in excess of the upper earnings limit ie above £4,189 per month.
Using yearly numbers, the first £12,570 of earnings in the tax year is charged at 0%, between £12,570 and £50,270 is charged at 8% and above £50,270 at 2%.
In addition to the amount you pay your employer has to pay the secondary level of Class 1 national insurance. This is paid at a rate of 13.8% on all income above £758 per month. There are reduced levels of employer contributions for certain classes of employees such as the under 21’s.
There are two important points to make;
- Class 1 is calculated per individual employment. If you have more than one employment you will pay national insurance on each role individually. Overall if you overpay you can claim the difference back but in some cases you may end up paying less than if it was all through one employment
- It is assessed for each ‘earnings period’ so if you have variable earnings say due to overtime then national insurance will vary from period to period.
What about self-employed doctors?
GP Locums, GP partners and those going into private practice may be self-employed instead of employees. National insurance is charged on profits made, this is called Class 4 national insurance. On profits between £12,570 per year and £50,270, the main rate of Class 4 NIC is 6% so slightly lower than for employees (8%). Above £50,270 you will pay a 2% rate, the same as employees.
Note that self-employed people do not have to pay any employers national insurance. Also, for completeness, companies do not pay NIC but note that if a salary is paid out of the company in order to extract the money from the company, employer’s NIC may need to be paid.
Can I reduce my NIC bill like I can my income tax bill?
Unfortunately, unlike income tax, employees cannot deduct their professional expenses or other costs to reduce the amount of NIC that is payable. The biggest payroll related expenses doctors generally have are pension contributions and student loan repayments – but again neither of these reduce the amount of NIC payable.
Anything that reduces the taxable profits of a self-employed individual, however, should reduce the liability to Class 4 NIC.
Is there anything else important to know about NIC?
As mentioned above if you have multiple jobs then you can be in a position where you overpay what you need to. In this case you can ask HMRC to review this at the end of the tax year by sending them copies of your P60’s (end of year tax summary). If you have overpaid then you will get a refund.
However not everyone is due a refund and it very much depends on how much NIC has been deducted.
Conclusion
NIC can be a significant cost reducing your take home pay. Equally though it entitles you to claim benefits – and particularly is important for allowing you to build up your state pension entitlement. If you are self-employed then always make sure you build up a reserve of cash not just for tax but also to pay your national insurance liabilities as they fall due.