Policy background Overview of the structure of NICs
NICs are currently divided into six classes:
Class 1 contributions are paid by both employees (primary) and employers (secondary) on the employee’s earnings. Contributions are payable by employees at 12% between the Primary Threshold and the Upper Earnings Limit, and 2% above that, for the 2021-22 tax year. Employers pay 13.8% on earnings above the Secondary Threshold.
Class 1A contributions are payable, by employers only, on most taxable benefits in kind and termination awards. Class 1A contributions are payable at a rate of 13.8% for the 2021-22 tax year.
Class 1B contributions are payable annually by employers on items under a PAYE Settlement Agreement (PSA) for income tax. Class 1B contributions are payable at a rate of 13.8% for the 2021-22 tax year on the value of items included in the PSA and on the total tax payable by the employer under the PSA.
Class 2 contributions are paid by the self-employed at a flat rate of £3.05 per week for the 2021-22 tax year. Class 2 NICs are mostly paid through Self Assessment. A person with profits from self-employment above £6,515 is required to pay Class 2 NICs. Payment is voluntary where profits are below this level.
Class 3 contributions are voluntarily payable at a flat weekly rate of £15.40 per week for the 2021-22 tax year by people who are not otherwise liable to pay Class 1 or Class 2 NICs to protect their entitlement to State Pension.
Class 4 contributions are paid annually by the self-employed on profits chargeable to tax as trading income. Class 4 NICs are payable at a rate of 9% on profits between a lower and upper profits threshold, and 2% on profits above the upper profits threshold, for the 2021-22 tax year.