National Insurance For The New Tax Year: April 2018-2019

Monday March 12, 2018

So what is National Insurance and why do we pay and who pays?

National Insurance was originally introduced in 1911 as a contributory system of insurance for those who could not work due to illness and unemployment and later retirement pensions and other benefits were also covered. National insurance has evolved further over the next 100 years, but still remains similar to its original roots, and pays for certain benefits and the state pension. Not until you reach the state retirement age will you stop paying National Insurance.

There are 4 classes of National Insurance, which are explained below;

Class 1

If you are an employee:

  •          National Insurance is deducted at a rate of 12% on all earnings
  •   Between £162 and £892 per week,
  •   This equates to between £702 and £3863 per month, or
  •   Between £8424 and £46,350 a year.
  •          If you are an employee that earns more than £46,350 per year, then earnings above this amount will be subject to deductions of 2%.

If you are an employer:

  •          You will need to pay 13.8% on earnings over £162 per week
  •          Employers do not have to pay the first £3000 of employer NIC
  •          Employers can make a claim if they are a business or charity paying employer’s Class 1 National Insurance
  •          Employers can also claim if you employ a care or support worker

If you are a Director:

  •          As a Director you can choose depending on your circumstances whether to pay National Insurance. Here at RIFT Accounting we contact all of our clients to ensure they are receiving the correct amounts, the options for the 2018/2019 tax year are as follows;
  •   Option 1 – you take an annual salary of £8424 and will not have any National Insurance deductions made.
  •   Option 2 – you take an annual salary of £11,850 and will have employee National Insurance deductions of £411.12 deducted  and employer National Insurance Contributions  of £472.79 per year .If you are eligible for employment allowance, as explained above, the employer National Insurance will not need to be paid provided the amount does not exceed £3,000. Liabilities for Directors are payable from January to March of each tax year (please note, if you have employees their deductions for National Insurance are made in equal amounts throughout the year).


However you do need to consider that if you are the only director employee , then you cannot claim the employment allowance.

There are 2 further considerations for Class 1 National Insurance, which are explained below;

  •          Class 1A - Employers pay this on work benefits provided to employees such as a company mobile phone at 13.8%
  •          Class 1B – Employers pay this if they have a PSA: PAYE Settlement Agreement, this rate is also 13.8%

Class 2

If you are self employed:

  •          You do not pay National Insurance for the first £6,032 per year, known as the Small Profits threshold
  •          HMRC plan to abolish Class 2 national Insurance in April 2019

Class 3

You can make Voluntary contributions to National Insurance if you have had a gap in earnings for instance.

Class 4

For self employed earnings, you pay National Insurance on profits over £8424 at 9%, dropping to 2% for earnings over £45,000

At RIFT Accounting we appreciate that this can all appear complex and it is our job to make this as easy to understand as possible, therefore if you have any questions, please feel free to ask and we will be happy to help.

The thresholds change each tax year and these rates will apply from 06.04.18.

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