National Insurance contributions

National Insurance contributions
= NIC
Payments made by those with earned income that contribute to the National Insurance Fund, from which benefits are paid. These benefits include retirement pensions, jobseekers' allowance, widow's benefits, incapacity benefit, and maternity benefits. There are six different classes of National Insurance contributions; the class applicable to a person depends on the type of earned income received by that person.
Class 1 is paid by those with earnings from employment. There are two parts to class 1, primary contributions paid by the employee and secondary contributions paid by the employer. The rates of contributions depend on the level of earnings and also whether or not the employee is a member of a contracted-out occupational, personal, or stakeholder pension scheme; for employees the standard rate is 11% on weekly earnings between £94 and £630 and 1% on weekly earnings thereafter (2005–06 figures).
Class 2 is a flat-rate contribution of £2.10 paid by the self-employed.
Class 3 is voluntary, and is also at a flat rate (£7.35 per week in 2005–06). It is paid by those wishing to maintain their contribution record even though they may be unemployed or their level of earnings is below that for mandatory contributions.
Class 4 is paid by the self-employed at a rate of 8% on income between a lower limit of £4895 per year and an upper limit of £32,760 per year and 1% on yearly income thereafter.
Class 1A was introduced in 1991 and is payable by employers who provide cars for private as well as business use for their employees. The level of payment depends on the cost and age of the car and the number of business miles travelled. It is based on the list price of the vehicle, on the day it was first registered as brand new.
Class 1B is payable by employers in value of any items included in a PAYE settlement with the Inland Revenue.

Accounting dictionary. 2014.

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