What is National Insurance? –
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Introduction 👋
Paying tax can be really confusing, especially with so many different types to pay.
One of these types of tax that grown-ups have to pay is called National Insurance tax (NI).
But what is National Insurance?
And what does it do?
Today we’re going to teach you everything you need to know about National Insurance tax.
Disclaimer: This website provides information for guidance and educational purposes only. The Grown-Up School does not provide regulated financial advice. You can seek independent financial advice from a suitably qualified and regulated professional advisor. Check out our disclaimer policy for more information.
What is National Insurance? 🤷♀️
National Insurance is money you pay to the government. It helps fund important services and benefits.
You pay National Insurance tax when you earn money from work.
National Insurance tax pays for support for things like:
- when people become pregnant (maternity pay) 🤰
- lose their jobs (unemployment) 💼
- become ill 🤒
- retire 👴
- or if their partner passes away. 😢
The amount of national insurance you have to pay depends on how much money you earn.
What is state pension? 👴
One of the most important benefits you get from paying national insurance tax is a thing called “state pension”.
State pension give you money to live off when you retire.
In 2023, the rules are that you need to pay National Insurance for 35 years to get the full amount of state pension.
You can then start to receive your state pension money when you reach “state pension age” ( 66 years old in 2023, but this is likely to change in the future!).
It’s worth knowing that whilst you’ll get state pension money from the government when you retire if you pay your national insurance, this money often isn’t enough to live comfortably from.
For this reason, a lot of people will invest in a “private pension” or other ways of saving, to ensure they live comfortably.
Why you should save for retirement when you’re really young 🧓
Who pays National Insurance? 🧐
Most adults who work in the UK pay National Insurance.
It’s like putting aside some of your pocket money each week, but this money helps support everyone in the country when they need it.
How do you pay National Insurance? 💷
If you have a job, your employer usually takes and pays your National Insurance money for you.
They usually pay the national insurance tax on your behalf through a system called Pay-As-You-Earn (PAYE).
Your employer will then give you a payslip showing how much tax they paid for you.
If you’re self-employed or run a business, you fill out a self-assessment form (basically an online form) to pay National Insurance tax. You usually have to do this every year!
If you’re self-employed, remember to save money for taxes, as you’re responsible for paying them.
What are National Insurance Numbers? 🔢
Just before you turn 16, people in the UK usually get sent a letter telling them what their “National Insurance Number” is.
Each person in the UK who pays national insurance gets a special number.
National insurance numbers are usually made in the following combination of letters and numbers: two letters, six numbers, one letter.
For example: QQ 123456 C
It’s unique to you, like a secret code.
This number helps the government keep track of the money you’ve put into your ‘savings account’.
Why is National Insurance important? 🤔
National Insurance is really important because it helps create a fair system where everyone supports each other.
If you face challenges or need assistance when you’re older, the money you’ve paid into your national insurance account will be there to lend a helping hand.
What happens if you don’t pay National Insurance? 😬
Not paying the right tax could lead to fines – it’s against the law!
Also, if you don’t pay National Insurance Tax, you might not be eligible to receive national insurance help e.g. state pension, maternity pay.
Conclusion 👍
So that’s it!
National Insurance is money you pay to the government. You pay National Insurance tax when you earn money from work.
National Insurance tax pays for support for things like:
when people become pregnant (maternity pay) 🤰
lose their jobs (unemployment) 💼
become ill 🤒
retire 👴
or if their partner passes away. 😢
The amount of national insurance you have to pay depends on how much money you earn.
One of the most important benefits you get from paying national insurance is state pension. 🧓
If you know any friends or family members who might benefit from learning about national insurance, share this post with them!
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