National Insurance contributions
Contributions payable by those in work and their employer into the National Insurance fund, which are used to pay contributory social security benefits to qualifying individuals. Self-employed people pay a lower rate but have more limited rights to benefits. Contributions are divided into four main classes which bring access to different benefit entitlements:
Class 1: Payable by employed earners on all earnings between the Lower Earnings Limit and Upper Earnings Limit, and by employers on all earnings above the Lower Earnings Limit. Class 1 contributions give access to all National Insurance benefits, both at a flat rate and with earnings-related increases where relevant (provided that the individual meets the specific conditions of entitlement for each benefit). Sections 73-76 make changes to the rules for Class 1 contributions.
Class 1A : contributions paid by employers in respect of employees’ car and fuel benefits. The charge is based on the cash equivalent of the car benefit and the car fuel benefit provided for private use of the employee.
Class 1B: contributions paid on settlements (PAYE Settlement Agreements) made with the Inland Revenue by an employer. This class of contributions is being introduced in April 1999.
Class 2: Flat-rate contribution paid by self-employed earners. Benefits are payable at the basic rate only, and there is no entitlement to certain benefits.
Class 3: Flat-rate voluntary contributions payable for any period when people were not liable to pay Class 1 or 2 contributions because they were not employed or were outside the country.
Class 4: Profit-related additional contributions payable by self-employed earners with profits above an annual threshold, up to an upper threshold equivalent to the Upper Earnings Limit for Class 1 contributors. These contributions do not give entitlement to any additional benefits (they are intended to ensure that those who can, contribute an amount which more accurately reflects the levels paid by employed earners and their employers).
