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Understanding National Insurance Contributions (NIC)

National Insurance is a tax on your earnings, originally to pay for the NHS, and the State pension. Today it's simply another tax.

National Insurance Contributions Types

Class 1 NICThe most common type, it's paid by employees and employers, as a percentage of salary. The primary contribution is paid by the employee, the secondary by the employer.
Class 1A NICPaid by the employer where the employee gets certain benefits with the job, like a company car.
Class 2 NICThe NIC rate paid by the self-employed, where earnings are above a specified level.
Class 3 NICVoluntary Contributions. Paid to fill gaps in the individuals National Insurance Contributions record.
Class 4 NIC Paid by the self-employed when profits are over a certain level each year.

Officer and a Gentleman

If you are a director of a limited company, you are therefore an 'office holder' of the limited company. You have to pay Class 1 NIC on your salary. The limited company also has to pay Class 1 NIC as your 'employer'.

NIC deductions have to be paid to HMRC by the 19th of each calendar month.

Class 1A NIC have to be paid for Benefits in Kind, such as a company car. These benefits will be entered on your P11D form each year.