The National Insurance fund is the source from which retirement pensions and several other Social Security benefits are paid. National Insurance contributions are divided into the following

categories:

Class 1        These are paid by all employees between the age of 16 and pensionable age. The contributions for 2002/2003 are 10% for weekly earnings in excess of £89 up to a maximum weekly earning of £585.

 

Employers also make a contribution at 11.8% in excess of the weekly earning of £89 with no maximum limit. The employers also continue to make National Insurance contributions for any employees who are over the pensionable age.

Class 2       These are paid by all persons who are classed as self-employed between the age of 16 and pensionable age unless their taxable profits are below a lower earnings limit which for 2002/2003 is £4025 per annum.

The rate for 2002/2003 is £2 per week payable by direct debit every 4 - 5 weeks or by quarterly remittance.

 

Class 3       This is a voluntary contribution for those persons who are not liable to either Class 1 or Class 2 contributions and wish to maintain their pension record. The rate for 2002/2003 is £6.85 per week.

Class 4       This is an additional contribution on the self-employed levied on taxable profits for 2002/2003 at 7% above the level of £4,615 to a maximum level of £30,420. These contributions are paid every January and July with the Schedule D tax payments.

 

Benefits     The main Social Security benefits relating to each class of contributions is as follows:

                                                                                                                                                                    

  Class    
 1  
2   
 3  
 
Job-seekers allowance 
*
 
Statutory sick pay   
*
*
 
Statutory maternity pay 
*
 
Maternity allowance 
*
*
 
Incapacity benefit
*
*
 
Widows pension
*
*
*
 
Basic pension 
*
*
*
 
Secondary pension                            
                   
*

                                                                                                                                                  
                  There are no benefits payable in respect of Class 4 contributions.
 
Payne Sherlock can advise you on which contributions are payable ans assist with the application for Class 2. We can also provide a full payroll bureau and advisory service for dealing with employees

 

Back to Publications