Contractors Limited Company Understanding National Insurance Contributions

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 NIC - The 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 NIC - Paid by the employer where the employee gets certain benefits with the job, like a company car.

Class 2 NIC - The NIC rate paid by the self-employed, where earnings are above a specified level.

Class 3 NIC - Voluntary 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'.

Employees (Primary Class 1 Contribution) pay 12% on earnings between £139 and £817 per week, and 1% above £817 per week.

Employers (Secondary Class 1 Contribution) pay 13.8% on earnings above £139 per week.

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.