National Insurance Contributions (NICs) are taxes payable by working individuals and employers in the U.K. NICs are used to fund certain aspects of the welfare state, such as state pensions, the NHS, and other benefits.

Employees pay NICs on earnings above a certain amount — this is called the primary threshold. Additional amounts are due from those earning over £50,000, known as the upper earnings limit. These rates change for the tax year 2020-2021 and can be found on various websites.

Employers must pay NICs on any salary, wage, or other remuneration given to their employees, the rate of which is set at 13.8%. In addition to NICS, employers are also required to pay an additional levy when the earnings of an employee exceed the secondary threshold of £157 a week.

Self-employed individuals must pay two Class 2 and Class 4 contributions. Class 2 contributions are £3.05 a week, or £159.80 per year. Class 4 are 9% of any profits made over £9,500 a year.

Voluntary contributions (or ‘top-up’ payments) can be made by employees in addition to the NICs they must pay. These contributions are used to increase the amount of state pension they are eventually entitled to receive.

National Insurance Contributions are a necessary and effective way to fund the UK’s welfare state, providing health care, generous pensions and unemployment benefits to those who need them. Without the contribution of both employers and employees, our welfare system would not be able to keep functioning. For those wishing to increase their state pension, voluntary top-up payments can be a helpful way to do this.