National insurance could well be the kind of thing you’ve vaguely heard about before, but never fully understood.

It’s the name for the contributions you make to the Government towards things that are paid for by the state. For example, things like benefits and your state pension.

Still confused? Here’s our guide to national insurance.

What is national insurance for?

National Insurance (NI) contributions go towards things you may end up claiming for. It’s intended to “cover your costs” if you claim benefits, and your state pension for example.

Every UK national should be issued an NI number. Usually a letter is sent to you a few months before your 16th birthday to inform you of it. If you’re over 16 and haven’t received information about an NI number, or don’t have one because you are a foreign national, you can apply for one through the Government’s website.

Although you’re not expected to learn your NI number off by heart, you should keep the number somewhere safe, and not tell it to people other than those using it in an official capacity (like HMRC or your employer) as it poses a security threat.

It is very important that everybody who can pay NI, does pay it. You’ll only be entitled to certain benefits if you’ve paid enough NI contributions. For example, you can only claim a state pension if you’ve paid in 30 years’ worth of NI contributions.

How is national insurance paid?

For people who are employed and paid by BACS – which most people are nowadays – NI contributions are automatically deducted from your salary by your employer.

Your employer liaises with HMRC to determine how much your NI contributions should be. The amount you pay depends on how much you earn – just like income tax. If you earn over £153 per week you will pay 12% on what you earn over £153 up to £805 per week. So, as an example, if you earn £300 per week, you will pay 12% on the amount of that which is over £153 – so in this case, £147. So your weekly NI would be 12% of £147 which is £17.64 per week.

If you’re self-employed, the amount you pay will vary according to how much you earn or how much profit you make. There is a standard rate of £2.75 per week which must be paid by self-employed people regardless of your profitability. There is more detailed guidance for self-employed contributions available online which is very handy.

If you’re self-employed, you don’t get the luxury of having your NI deductions made for you. Instead, you have to fill out twice-yearly tax returns.

How is it kept track of?

Your NI number is a unique reference number which follows a certain format, which is:

[Letter][Letter] [Number][Number] [Number][Number] [Number][Number] [Letter]

Your NI number is used by your employer and HMRC to make sure your NI contributions go to the right “pot”, in other words, that your contributions can all be added up and accounted for correctly. This is managed by HMRC.

You can also make voluntary contributions to your NI pot (for example if you have a gap in employment or lived abroad) and want to keep your contributions topped up.

Who doesn’t have to pay national insurance?

The following people aren’t expected to pay national insurance.

• Anyone under the age of 16
• Unemployed people
• Anyone earning under £153 per week
• Anyone over state pension age

How long do I have to pay national insurance?

When you’re in employment, you’ll continue to pay NI contributions all the time, right up until state retirement age.

Retirement age is currently in the process of changing. Currently it’s 65 for men and 60 for women, but it is being gradually adjusted so that by 2020 it will be 66 for men and women.