Class 1 National Insurance Contributions

May 10, 2021

What Are Class 1 National Insurance Contributions? 

Class 1 national insurance contributions (NICs) are those made by both the employees as primary contributions and their employer as secondary contributions, as a percentage of the employee’s earnings 

An employees class 1 NICs are paid via their employer’s payroll, aka the PAYE scheme. The amount paid will depend on the following: 

  • Employee’s job category letter 
  • Periodic gross earnings of the employee 

What Is An Employee’s Category Letter? 

Most employed individuals are liable to the same rate of national insuranceHowever, in some instances, certain demographics will be subject to a lower rate. The system used to track these classifications is known as a category letter. You can check the handy table below to see which group you belong to: 

Category Letter  Employee Group 
A If you are not categorised as B, C, J, H, M, X or Z, you’ll be an A 
B  Widows and married women authorised to pay reduced national insurance 
C  Employees over the state pension age 
J  Employees who can defer national insurance because they are already paying it in another job 
H  Apprentice under 25 years 
M  Employees under 21 years 
Z  Employees under 21 who can defer national insurance because they are already paying it in another job 
X  Employees who do not have to pay national insurance. E.g. they are under 16 years 

 

Although most employees are in category A, you can easily find out your category from your payslip. 

Employee/Primary Contributions and Rates 

Via the payroll, employers deduct NICs from employee’s salary at source and pay this over to HMRC. The table below details the rates employers use to deduct contributions for the 2021/2022 tax year, based on the frequency of the employer’s payroll.

Weekly Contributions 

Category Letter  £120 to £184 p/week £184.01 to £967 p/week Over £967 p/week
A  0%  12%  2% 
B  0%  5.85%  2% 
C  N/A  N/A  N/A 
H  0%  12%  2% 
J  0%  2%  2% 
M  0%  12%  2% 
Z  0%  2%  2% 

 

 Monthly 

Category letter  £520 to £797 a month  £797.01 to £4,189 a month  Over £4,189 a month 
A  0%  12%  2% 
B  0%  5.85%  2% 
C  N/A  N/A  N/A 
H  0%  12%  2% 
J  0%  2%  2% 
M  0%  12%  2% 
Z  0%  2%  2% 

 

Employers/Secondary Contributions and Rates 

Employers are also required to make NICs on top of their gross employees’ earnings. The table below details the relevant rates: 

Weekly 

Category letter  £120 to £170 weekly  £170.01 to £967 weekly  Over £967 a week 
A  0%  13.8%  13.8% 
B  0%  13.8%  13.8% 
C  0%  13.8%  13.8% 
H  0%  0%  13.8% 
J  0%  13.8%  13.8% 
M  0%  0%  13.8% 
Z  0%  0%  13.8% 

 

Monthly  

Category letter  £520 to £737 a month  737.01 to £4,189 a month  Over £4,189 a month 
A  0%  13.8%  13.8% 
B  0%  13.8%  13.8% 
C  0%  13.8%  13.8% 
H  0%  0%  13.8% 
J  0%  13.8%  13.8% 
M  0%  0%  13.8% 
Z  0%  0%  13.8% 

 

Class 1A  

Employers pay Class 1A NIC on: 

  • Work benefits to employees like mobile phone, cars or laptops.  
  • Non-contractual termination payments for more than the £30,000, not subject to Class 1 NIC.  

Class 1A national insurance is filed to HMRC via the Form P11D(b)for reporting Benefits In Kind (BIK). The amount paid follows prescribed rules set out by HMRC that determine the cash equivalent of a particular benefit.

The employer has a duty to submit Form P11D(b) each year on or before 22 July. They are then required to provide a Form P11D to each relevant employee, as the amounts are relevant to personal tax affairs. 

  • For the tax year 2021/2022 the Class 1A rate is 13.8% and  is paid by the employer 

Note – Unlike class 1, class 1A does not trigger an employee liability for national insurance. However, it is important to note that the employee will be subject to tax on the P11D values, that will be collected via their tax code or self-assessment process. 

 

Class 1B 

In addition to class 1A and the P11D process, employers also need to comply with their class 1B national insurance obligations. This type of national insurance is traditionally relevant to the following items: 

  • Staff food and entertainment 
  • Travel & relocation expense 
  • Staff awards (incl. long service awards) 
  • Trivial staff gifts and benefits 

These amounts are reported via a PAYE Settlement Agreement (PSA), that is due on or before 19 October. 

Note – many of the examples listed above have exemptions that the employer can utilise if done correctly, as they are subject to strict thresholds. We recommend speaking to your Spondoo Accountant for more details. 

How To Pay Class 1 National Insurance 

When starting your employment, you will be required to provide your national insurance number to your employer. Following this, you do not have to worry about the Class 1 NIC payment because your employer will deduct the contributions and tax from your wages before you are paid.  

If you are the director of your own LTD company, you will pay your personal class 1 national insurance via a PAYE scheme. 

Why Pay Class 1 National Insurance Contributions? 

You are not only investing in public services, but national contributions also give you access to extremely valuable benefits and pensions: 

  • Basic state pension 
  • Additional state pension 
  • Bereavement support payment 
  • New state pension 
  • Statutory maternity allowance 
  • Contribution-based jobseeker’s allowance 

Do I Need to Pay Class 2 and Class 4 NICs if I Am Already Paying Class 1? 

If you are both employed and self-employedyou are required to pay both class 1 national insurance (for the employed), and self-employed National Insurance contributions (either class 2 or class 4, depending on your business profits)The combined income from both sources will determine how much NIC you pay. 

Find out more about self-employed National Insurance Contributions in our expert guide. 

When Do I Stop Paying NIC? 

Once you reach the state pension age, you can stop making national insurance contributions. 

You will love our limited company package, which covers all you need to know about national insurance contributions. 

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Information provided on the site is merely guidance that may change in line with UK law and regulations. Users must not consider this to be financial advice or their sole resource when making any financial decision. Spondoo is a trading name for Accounting SQL Limited, authorised & license accounting firm under the Institute of Financial Accountants.

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