National Insurance Contributions

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National Insurance Contributions

National Insurance Contributions (NIC) are contributions paid by certain individuals out of their earnings. This tax charge unlike others is paid in order to ensure an individuals’ entitlement to certain state benefits.

The employer is also liable for NIC and the amount is calculated and deducted through PAYE, recorded on the Full Payment Submission (FPS) and paid to HM Revenue and Customs HRMC

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State benefits that depend on National Insurance contributions:

State benefits that are linked to NIC are known as ‘contributory benefits’.

NIC count towards the following state benefits:

  • The basic State Pension
  • The additional State Pension
  • Jobseeker’s Allowance – the ‘contribution-based’ element
  • Employment and Support Allowance – the ‘contribution-based’ element
  • Maternity Allowance
  • Bereavement benefits – Bereavement Allowance, Bereavement Payment and Widowed Parent’s Allowance

State benefits not linked to NIC:

  • Child Benefit
  • Guardian’s Allowance
  • Jobseeker’s Allowance – the ‘income-based’ element
  • Employment and Support Allowance – the ‘income-related’ element
  • Working Tax Credit and Child Tax Credit
  • Attendance Allowance or Disability Living Allowance
  • Carer’s Allowance
  • Industrial Injuries Disablement Benefit
  • War Widow’s or Widower’s Pension
  • Pension Credit
National Insurance Contributions credits

In certain cases a person is granted credit that are used towards covering contributions that could otherwise have not been made by the individual as they were unable to work.

These can protect a person’s privilege to certain benefits:

  • Class 1: State Pension, Bereavement benefits, and several other state benefits
  • Class 3: Basic state pension and Bereavement benefits only

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