Social Security Contributions in the United Kingdom
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National Insurance Contributions (NICs)
In the United Kingdom, social security payments are referred to as ‘national insurance contributions’ (NICs). NICs are payable by employees, employers, and the self-employed. The rates and thresholds for NICs can vary and are subject to change. Below, we provide a concise overview of NICs in the UK.
Employee Contributions (Class 1 NICs)
For the 2022/23 tax year, Class 1 NIC rates for employees’ salaries increased by 1.25% due to the Health and Social Care Levy. However, this increase was in effect until 5 November 2022, when the Levy was removed. During this period, no contributions were payable on the first £190 per week. Beyond that, contributions ranged from 13.25% (for earnings above £190.01 up to the upper earnings limit) to 3.25% (for earnings above the upper earnings limit). After 5 November 2022, the rates reverted to 12% (for earnings between £190.01 and the upper earnings limit) and 2% (for earnings above the upper earnings limit).
Employer Contributions (Class 1 NICs)
In 2022/23, employers’ NIC on employees’ salaries was at a rate of 15.05% until 5 November 2022 and remained at 13.8% thereafter.
Self-Employed Contributions (Class 4 NICs)
Self-employed individuals pay Class 4 NIC contributions based on their profits. For the 2023/24 tax year, the rate is 9% on profits above the lower profits limit of £12,570 and up to the upper profits limit of £50,270. A 2% rate applies on profits above the upper profits limit. Additionally, self-employed individuals pay a flat-rate, Class 2 contribution of £3.45 per week in 2023/24 when their profits exceed £6,725.
Child Benefit and Capital Gains Tax (CGT)
Aside from NICs, the UK imposes Capital Gains Tax (CGT) on capital gains. For the 2023/24 tax year, there is an annual exempt amount of £6,000, and most gains are taxed at 10% for gains falling within the basic rate band and 20% for gains above the higher rate threshold. Stamp Duty Land Tax (SDLT) applies to property acquisitions, and an additional 2% surcharge is applicable to non-resident purchasers from April 2021.
Compliance and Summary
Compliance with tax laws is essential to navigate these contributions and taxes in the UK. Understanding the different tax rates, thresholds, and obligations can help individuals, employers, and the self-employed make informed financial decisions. It is important to stay updated with the latest tax regulations and changes to ensure full compliance with the law.
What are the employee categories in the UK?
In the United Kingdom, employee categories are designated by National Insurance (NI) category letters. These category letters serve as a crucial mechanism to determine the contributions both employees and employers must make to the National Insurance fund. The categorization is based on specific criteria, and it plays a significant role in the calculation of contributions for different employee types.
Employee Contributions:
Category A
This category encompasses all employees, excluding those falling under other specific groups (B, C, J, H, M, X, and Z). Employees in this category are liable to pay National Insurance contributions based on their earnings. The contribution rates are as follows:
- For earnings between £120 and £184 per week (£520-£797 per month): 0% contribution.
- For earnings between £184.01 and £967 per week (£797.01-£4,189 per month): 12% contribution.
- For earnings over £967 per week (over £4,189 per month): 2% contribution.
Category B
This category includes married women and widows who are entitled to pay reduced NI. The contribution rates for this group are similar to Category A.
Category C
Employees over the State Pension age do not make National Insurance contributions.
Category H
This category is designated for apprentices under 25 years old. Similar to Category A, these employees contribute at different rates based on their earnings.
Category J
Employees eligible to defer National Insurance because they are already paying it in another job fall under this category. The contribution rates mirror those of Category A.
Category M
This category comprises employees under 21 years old. Similar to Categories A and H, they contribute at varying rates depending on their earnings.
Category X
Employees in this category do not have to pay National Insurance contributions either because they are under 16 years old or they earn less than £120 per week (£520 per month).
Category Z
Similar to Category J, this category includes employees under 21 who can defer NI because they are already paying it in another job.
Employer Contributions:
Employers are also categorized based on their employees’ category letters, and they are responsible for contributing to the National Insurance fund. The employer contribution rates are as follows:
Category A
Employers of employees in this category contribute at varying rates according to their employees’ earnings.
Category B
Employers of employees under Category B contribute at a rate of 13.8% regardless of their employees’ earnings.
Category C
Employers of employees in Category C contribute at a rate of 13.8%.
Category H
Employers of apprentices under 25 (Category H) do not contribute for those earning below £170 per week (£737 per month). However, for those earning above this threshold, the employer’s contribution is 13.8%.
Category J
Employers of employees who can defer National Insurance (Category J) contribute at a rate of 13.8%.
Category M
Employers of employees under 21 (Category M) do not contribute for those earning below £170 per week (£737 per month). For those earning above this threshold, the employer’s contribution is 13.8%.
Category X
Employers of employees under Category X do not have to pay National Insurance contributions regardless of their earnings.
Category Z
Employers of employees under Category Z contribute at a rate of 13.8%.
These National Insurance category letters play a pivotal role in determining both employee and employer contributions, ensuring that the National Insurance fund is adequately funded while taking into account various employee types and their financial circumstances.