ANNEX A: Overview of National Insurance Contributions(1)
There are six classes of contributions.
	Class 1 contributions which are paid by both employees and employers on the employee’s earnings – the employee’s share is known as the primary contribution, the employer’s as the secondary contribution. Class 1 contributions are payable on all gross earnings including commissions and bonuses, on readily convertible assets given to employees and on employees’ liabilities paid by employers. Primary contributions are payable at 11% of earnings above £94 up to £630 per week (£4,895 to £32,760 per year) and 1% of earnings above this limit. Secondary contributions are payable at 12.8% of all earnings above £94 per week. There are arrangements for reducing the rates of both primary and secondary contributions where the employee has contracted out of the State Second Pension. Class 1 contributions are normally collected monthly by HMRC along with PAYE income tax.
	Class 1A contributions are payable by employers on most taxable benefits in kind. They are payable by employers only and collected annually by HMRC.
	Class 1B contributions are payable annually by employers on items which are dealt with under a PAYE Settlement Agreement (PSA) for income tax. Class 1B contributions are payable at a rate of 12.8% on the value of the 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 £2.10 per week – a self-employed person can be exempted from liability where earnings are below £4,345 per year. Class 2 contributions are paid either monthly or quarterly.
	Class 3 contributions are paid on a voluntary basis by people who fall outside the scope of Class 1 and 2 contributions at a flat rate of £7.35 per week.
	Class 4 contributions are paid annually by the self-employed on profits that are derived from a trade, profession or vocation and which are chargeable to income tax. Class 4 NICs are payable at a rate of 8% on profits between £4,895 and £32,760 and 1% of profits above £32,760.