Guide to National Insurance payments

Our guide through the maze of NI contributions

If you’ve ever been a permanent employee, you’ll know that National Insurance (NI) contributions are usually deducted from your salary each month, along with tax, via pay-as-you earn (PAYE).

These contributions are designed to cover the cost of health care, state pensions, some types of unemployment benefit and other ‘safety net’ expenses. They are, literally, insurance premiums collected from you by the state to offset the cost of your non-tax-generating time ie illness, retirement. They are also compulsory and, together with income tax, they account for a significant chunk of your gross income.

Things change, however, when you become self-employed or run your own business, although the National Insurance payments are still compulsory. As with income tax, you’re unlikely to continue down the PAYE route, especially if your income is going to vary from one month to the next, which is quite likely. This means you’ll have to talk to the National Insurance Contributions Office (NICO, part of the Inland Revenue) about a system of payment that takes the variation of your monthly income into account.

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