how national insurance contributions nics work
national insurance is a tax paid by individuals and corporations in the united kingdom it is a withholding tax just like fica in the united states employees and employers pay a share of the national insurance contributions which the employer collects through payroll deductions self employed individuals pay both portions employers regularly report these contributions to the her majesty s revenue and customs hmrc 1in order to begin paying individuals must have a national insurance number which is just like a social security number ssn taxpayers can apply for a nin online this number is unique to an individual so contributions are recorded against only one taxpayer s name 2taxpayers must make nics as long as they meet the following criteria employees can also make additional voluntary contributions so they can qualify for a higher pension amount in the future self employed people and british citizens working outside the country can also make voluntary contributions toward pension eligibility 4nics are collected to fund a number of benefit programs this is done by dividing employees into classes the table below highlights these classes and the benefit programs they fund the basic state pension in the u k is 156 20 each week 5 the full new state pension is 203 85 per week 6categories and rates for national insurance contributions nics employees are divided into different categories there are other categories for taxpayers who work in freeports individuals who don t make nics are categorized with the letter x 7each of these classifications is assigned a different rate based on the amount they earn per week an employee who works or expects to work fewer than 35 years will not qualify for the maximum pension benefit without making additional voluntary payments payouts may be higher for employees who make voluntary contributions or defer taking the benefit until a later age history of national insurance contributions nics british employees pay the national insurance from age 16 through the official retirement age which is age 65 for most but is being gradually increased to age 67 the system began with the national insurance act of 1911 and was limited to a government funded unemployment benefit 8at that time health insurance and pension benefits were administered by private trade unions and approved societies or professional associations an old age pension was paid to people over age 70 at a time when only one in four britons lived that long world war ii was nearing its end by the time the government began contemplating an expansion of the social safety net in great britain in march 1943 prime minister winston churchill in a radio broadcast promised a system of national compulsory insurance for all classes for all purposes from the cradle to the grave the system was not fully in place until 1948 9 a series of expansions in the 20th century extended its reach to add funding for the national health service the public retiree pension plan and unemployment benefits 