Help in understanding National Insurance

beefturnmail

Hi, I've been unsucessfully trying to fathom out from the HMRC website, how much NICS I should be paying. Please could someone help my understanding? My situation is as follows:

I have a final salary pension with my employer and have contracted out (my NICS code on my payslip is D). As I understand from the website I should be paying 9.4% on anything above the earning's threshold of £5,435. So am I right in thinking that if I earn £30k I should pay 9.4% of £24,565 (£2,358.24)?

There is a bit on the HMRC website about a 1.6% rebate between the lower earning level, up to and including the earnings threshold, which I'm not sure I understand.. Is the 1.6% rebate the difference between the standard NIC rate of 11% and 9.4% or is it an additional rebate or something else entirely?

Thanks in advance

CLAPTON

the 1.6% discount is on the difference between the min and the lower NI limit...it works out at about 0.85 per month (that is 85 pence per month)..dont spend it all at once will you now.

chrisbur

beefturnmail wrote: »

Hi, I've been unsucessfully trying to fathom out from the HMRC website, how much NICS I should be paying. Please could someone help my understanding? My situation is as follows:

I have a final salary pension with my employer and have contracted out (my NICS code on my payslip is D). As I understand from the website I should be paying 9.4% on anything above the earning's threshold of £5,435. So am I right in thinking that if I earn £30k I should pay 9.4% of £24,565 (£2,358.24)?

There is a bit on the HMRC website about a 1.6% rebate between the lower earning level, up to and including the earnings threshold, which I'm not sure I understand.. Is the 1.6% rebate the difference between the standard NIC rate of 11% and 9.4% or is it an additional rebate or something else entirely?

Thanks in advance

National insurance is worked out each time you are paid. So if you are paid monthly then you have a Lower earnings limit (LEL) of 390, earnings threshold (ET) of 453, and an Upper earnings limit (UEL) of 3337.
Providing your earnings reach the LEL then that month will count towards any benefit that needs you to pay NI even though you do not actually pay NI untill you reach the ET. Earnings above the ET and up to the UEL have NI deducted at 9.4% and earnings above the UEL have NI deducted at 1%

NI used to be deducted once you reached the LEL so you would be paying at a lower rate than someone who was not contracted out starting from the LEL . When the ET was introduced anyone who was not contracted out was now paying no NI from the LEL up to the ET so to maintain the NI reduction for those who were contracted out the NI rebate was introduced. This means that you are in effect paying a 1.6% lower NI rate on all earnings between the LEL and the UEL compared to someone who is not contracted out.

mary

Trying to work out how much it would cost my son to work in London. Thinks it won't cost much!! Anyway was trying to do calculations for him, but came unstuck with the NI figures. If you are earning say £20K, do you pay 11% as an employee on the gross income or on your taxable income, having deducted your personal allowance etc.?

CLAPTON

Ni is based on 11% of gross income after deducting 453 per month unless the pension scheme is contracted out in which case it's 9.4%

mary

So, presumably
£20,000 - (453 x 12) £5436 = £14564 x 11% = £1602 p.a.

Where does the 453 come from?

Thanks

CLAPTON

NI (unlike tax) is calulated either weekly or monthly (or depending upon how the person is paid)... so the NI allowance for weekly paid is 105 and for monthly paid is 453 (so its approxiamtely 5435 per annum depending a little how you calculate it)