Classes Of National Insurance Contributions
INTRODUCTION National Insurance was introduced in 1911 as a means of funding a National Social Security Scheme. Although there is a general reference to the National Insurance Fund there is in fact no fund as such; the proceeds are used within the government’s annual budgets to finance the current year’s welfare expenditure, on a ‘pay as you’ go basis. The qualifying conditions for the basic state pension establish a clear link between the NI contributions paid by an individual and the benefit entitlement of that individual, usually referred to as ‘the contributory principle’. It may however be argued that in recent years this principle has been eroded with the introduction of certain classes of NI contribution, notably Class 1A and 1B, where employer only charges paid in respect of an individual do not count against the individual’s contribution record for benefit purposes. National Insurance is administered by HMRC’s National Insurance Contributions and Employer Office (prior to 1.4.1999 - The Contributions Agency). All contributors are allocated a unique contribution record reference - their National Insurance Number comprising two letters, six numbers and a final letter. National Insurance numbers are issued to individuals as they attain the age 16. COPYRIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS CLASSES OF NATIONAL INSURANCE CONTRIBUTIONS National Insurance is assessed within five categories or ‘classes’. Class 1 Earnings related contributions, assessed against paid employment (not pensions). Both employee (primary) and employer (secondary) contributions make up payments that are usually remitted to HMRC under PAYE arrangements. Primary contributions are not due after state pension age however the employer pays secondary contributions. Contributions are determined as a percentage of earnings within limits set annually. Class 1A Employer only contributions originally assessed on the taxable value of company cars or any fuel provided by an employer for private use. Extended from April 2000 to include most taxable benefits-in-kind. Class 1B Introduced on 6th April 1999, contributions are chargeable as a lump sum on expenses, payments and benefits-in-kind taxed under a PAYE Settlement Agreement (PSA) - see PART2. Class 2 Flat-rate contributions paid by the self-employed. This was originally collected directly by HMRC via a direct debit arrangement. From April 2014 collection was switched to Self-assessment. Class 2 contributors have access to the single tier state pension and maternity allowance only. No printing, copying or repro ction permitted. Class 3 Flat-rate voluntary contributions of a fixed amount to either protect, make up a deficit, or to enhance benefit entitlement.
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