What is National Insurance?
National Insurance is money paid to HMRC by employees, employers, and the self-employed in return for certain state benefits.
Example: How Mei works out her Class 4 National Insurance contributions
Mei is a self-employed landscape gardener. In order to work out how much Class 4 National Insurance she is due to pay for the tax year 2022/23 she needs to know three things:
- Her taxable profit: £27,000
- The Class 4 National Insurance thresholds: (see above)
- The Class 4 National Insurance rate her profit is subject to: 10.25%
As Mei’s taxable profit is over £9,880, she is due to pay Class 4 contributions. She works how much is subject to Class 4 deductions:
£27,000 - £9,880 = £17,120 subject to Class 4 National Insurance
Mei then calculates how much she is due to pay:
£17,120 x 10.25% = £1,754.80 to pay in Class 4 National Insurance contributions
As Mei completes an annual Self Assessment tax return through FreeAgent, this is automatically calculated annually as part of her overall tax bill.
For Class 4 NIC rates from previous years check gov.co.uk.
How to pay Class 4 National Insurance contributions
|Online or telephone banking (Faster Payments)||Same or next day|
|CHAPS||Same or next day|
|Bacs||Three working days|
|Business credit card (1.5% charge, personal credit cards are no longer accepted)||Three working days|
|Direct Debit||Three working days|
|Standing order||Three working days|
Note: Class 4 National Insurance contributions are usually calculated annually as part your Self Assessment tax return. The total amount of contributions due will be included in the total bill, which includes Income Tax, following completion of your return.
Online or telephone banking: If you’re paying by online or telephone banking (Faster Payments, CHAPS or Bacs) details for the HMRC bank account you should pay your tax bill into can be found here.
Debit card or business credit card: If you are paying by debit or credit card you can do so by following the links from your HMRC online account.
Cheque: You can pay your income tax bill with a cheque made payable to ‘HM Revenue and Customs only’ followed by your Unique Taxpayer Reference (UTR) number. It should be posted along with your paying-in slip to HMRC, Direct, BX5 5BD – no street name, city name or PO Box is required.
Direct Debit: You can set up a Direct Debit from your HMRC online account. The first time you set up a Direct Debit for Self Assessment allow at least five working days the before you submit your return to ensure the payment is taken from your account in time. Thereafter allow for at least three days. Note that you have to set up a new direct debit every time you wish to make a payment and that payment on account requires a separate Direct Debit.
At your bank or building society: You can only pay your Income Tax bill at your bank or building society if you still get paper statements from HMRC and have the paying-in slip they sent to you in the post. Payments can be made by cash or cheque made payable to ‘HM Revenue and Customs only’ followed by your Unique Taxpayer Reference (UTR) followed by the letter ‘K’.