NIC rates and earnings

The table below shows the current rates and earnings limits for National Insurance contributions, as determined by the Inland Revenue, compared with those of the 2005-06 year. All figures are weekly unless stated otherwise.

There’s one more class of National Insurance contribution; Class 3. These are voluntary, flat-rate contributions at £7.35 per week that may be paid by people who would otherwise fail to qualify for retirement pension and some other kinds of benefit, usually because they have not yet contributed enough Class 1 or Class 2 contributions. This is not usually something that you as an employer have to be concerned about; it’s a matter for the individual concerned to discuss with the IR.

If all this sounds complicated, it’s not quite as bad as it sounds. Self-employed people pay Class 2 and (if they’re earning enough) Class 4. Employed people pay Class 1 and their employers pay Class 1A. Anyone wanting to make up a deficit so that they can claim their pension pays Class 3. The varying rates for contracting out and other factors are all described in the leaflets and forms available from the IR, so as long as you – or your accountant – makes sure that a payment and monitoring system is in place at the start of the financial year, National Insurance should be no more complicated than VAT calculations. Rates and earnings limits for NI contributions

Item 2005/6 2006/7
Lower Earnings Limit £82 £84
Upper Earnings Limit £630 £645
Primary Threshold £94 £97
Secondary Threshold £94 £97
Employee’s contributions 11% 11%
Employee’s Contracted-out Rebate 1.6% 1.6%
Married Women Reduced Rate 4.85% 4.85%
Employer’s Contribution Rates 12.8% 12.8%
Employers’ contracted-out rebate, salary-related schemes 3.5% 3.5%
Employers’ contracted-out rebate, money-purchase schemes 0.60% 0.60%
Class 2 Self employed Contribution £2.10 £2.10
Class 2 Small Earnings Exception £4,345 per year £4,465 per year
Special Class 2 rate for share fishermen £2.75 £2.75
Special Class 2 rate for volunteer development workers £4.10 £4.20
Class 3 rate £7.35 £7.55
Class 4 Contributions – Upper Profits Limit £32,760 per year £33,540 per year
Class 4 Contributions – Lower Profits Limit £4,895 per year £5,035 per year
Class 4 rate between lower profits limit and upper profits limit 8% 8%
Class 3 rate above uppwe profits limit 1% 1%

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