A Guide to National Insurance Contributions for UK Limited Companies

Ryan Patrick

Mar 9, 2024 • 7 min read

Whether you are an employer, are employed, or own a small business in the UK, you must fulfil your tax obligations and pay National Insurance contributions. National Insurance is a monthly tax deducted from an employee's salary. However, National Insurance contributions for limited companies are more complicated, and this complexity presents opportunities to achieve substantial tax savings.

Running a limited company in the UK has various responsibilities. One of them is understanding and managing National Insurance obligations. Managing National Insurance is essential for the smooth operation of your business. That's why Incorpuk has compiled the necessary information to assist you when operating as a limited company.

What's the National Insurance Contribution?

National Insurance is a contribution system in which employees and employers fund numerous state services and benefits. The obligation to pay National Insurance contributions (NIC) extends to employers, company directors, and self-employed individuals. You must pay National Insurance if you're 16 years and above and

You're earning over £242 per week
Self-employed earning profit above £12,570 yearly

Every UK employer must make National Insurance contributions based on employees' wages, expenses, and benefits. Even if you're your business's sole director and shareholder and operate it as such, your limited company is categorised as your employer. The HMRC collects the National Insurance contribution from employers as employees via Pay As You Earn. If you're a sole trader or an LLP member, you pay the National Insurance through self-assessment.

Paying national insurance, you fund state benefits such as:

Jobseekers allowance
Bereavement support
Maternity allowance
Teachers
Police
Fire service, etc

Who Pays the National Insurance Contribution?

Various factors determine the type and level of your National Insurance contribution in the UK, such as:

Employment status
Level of earnings
Residence status

National Insurance Categories

The amount of National Insurance you pay depends on your category. Every category has its contribution schedule, as shown in the table below.

Category	Employee type
A	Default category: all employees not covered by other category
B	Widows and married women are privileged to have reduced national insurance.
C	Employees above the pension age
H	Interns under age 25
J	Employees paying National Insurance at another job (they can defer NI payment)
M	Employees under 21
V	Armed forces veteran in their first job
Z	Under the age of 21, employees paying National Insurance at another work (they can defer NI payment)
F	Freeport workers uncovered by L, I, and S
I	Widows and married women working in Freeport are eligible for reduced national insurance.
L	Freeport employees paying National Insurance at another workplace (they can defer NI payment)
S	Freeport employees over the pension age
X	Workers exempted from national insurance

National Insurance Rates

NICs’ are taxes paid by employees and employers. The amount of contributions they make is not equal. In most cases, employers pay higher contributions than employees. The rate you pay depends on your category and your salary. Although most employees are under category A, you may have some exceptions you may want to know.

Let's have a table showing:

National Insurance for employees

Category	£533- £1,048 a month	£1,048.01 - £4,189 a month	Above £4,189 a month
A	0%	10%	2%
B	0%	3.85%	2%
C	N/A	N/A	N/A
F	0%	10%	2%
H	0%	10%	2%
I	0%	3.85%	2%
J	0%	2%	2%
L	0%	2%	2%
M	0%	10%	2%
S	N/A	N/A	N/A
V	0%	10%	2%
Z	0%	2%	2%

National Insurance rates for employers

Category	£533 -£758 a month	£758.01 - £2,083 a month	£2,083.01 - £4,189 a month	above £4,189 a month
A	0%	13.8%	13.8%	13.8%
B	0%	13.8%	13.8%	13.8%
C	0%	13.8%	13.8%	13.8%
F	0%	0%	13.8%	13.8%
H	0%	0%	0%	13.8%
I	0%	0%	13.8%	13.8%
J	0%	13.8%	13.8%	13.8%
L	0%	0%	13.8%	13.8%
M	0%	0%	0%	13.8%
S	0%	0%	13.8%	13.8%
V	0%	0%	0%	13.8%
Z	0%	0%	0%	13.8%

Classes of National Insurance

National Insurance comes in different types, determining your earnings and employment status.

Class 1

This class has two categories: primary (employee) contributions and secondary (employer) contributions.

Employees contribute primary Class 1 National Insurance on their wages if they:

Earn over £242 a week
Are under state pension age

The majority of employees will face the following National Insurance contribution rates on their income for the tax year 2023-24:

12% on their earning between £242 - £967 weekly or £1,048 to £4,189 per month
2% on wages over £967 a week or £4,189 a month

Directors' National Insurance contribution is calculated annually instead of monthly. They only pay National Insurance contributions to their total earnings, surpassing the annual threshold. The yearly threshold for directors adjusts proportionally according to the directorship start date. However, if you were appointed at the start of the tax year (April 6, 2023), the calculation follows these steps:

12% of annual earnings over £12,570 - £50,270
2% of yearly salary over £50,270

But you can make payments on the directors' contribution account throughout the tax year, depending on salary payment intervals, just like for other business employees.

Employers must pay secondary class 1 National Insurance on directors' salaries and workers' wages. The current rate is 13.8% on salaries over the secondary threshold of £175 a week, £758 a month, or £9,100 a year.

Employer's National Insurance contribution is considered a tax-deductible expense for companies. If you own a company, this implies that the employer's contributions your company pays are deductible from taxable business profits, thus lowering your Corporation Tax liability. Therefore, although National Insurance contributions are an added cost to your business, these payments can benefit you and your business.

Class 1A and 1B

Employers must make 13.8% Class 1A or 1B contributions to taxable benefits they provide their directors or employees. The Class 1 A contributions are payable based on the value of workplace benefits like health insurance, company mobile phone, or car. These contributions are computed as the money equivalent of the benefit.

Additionally, you'll make a Class 1B contribution if you have a PAYE settlement agreement. This will allow your company to make one annual payment to the HMRC to cover National Insurance and all taxes on small taxable expenses and benefits.

Class 2

You can pay for class 2 National Insurance contributions if you are self-employed. This class has a flat rate of £3.45 contributions a week in 2024. You contribute weekly or part of a week that you're self-employed during a tax year, provided your profits for the entire tax year are £6,725 or over in 2022-23 and £6,725 in 2023-24.

Remember, paying class 2 contributions is optional for self-employed individuals with fewer profits below the small profits threshold. So should you pay or not if it's voluntary? Making Class 2 National Insurance contributions, regardless of lower profits, can assist in accumulating contributory entitlements to benefits.

Class 3

Class 3 is a voluntary contribution tailored to fill National Insurance contributions records gaps. Its purpose is to get you a more extensive pension state.

You must have 35 qualifying years of NIC to receive a state pension in full.
You reach the state pension age.
You will have a reduced state pension if you have less than 35 years of qualifying contributions.
You must have reached at least ten qualifying years to receive a new state pension.

So, if you have not reached qualifying years, you may pay class 3 contributions voluntarily to boost your state pension entitlement. For 2023-24, NICs are payable at £17.45 a week.

Class 4

This is for self-employed people, from £11,908 in 2022-2023 to £12,570 in 2023-24. If you're above this NIC threshold, you must pay on profits from £11,908 to £50,270 in 2022-23 and £12,570 to £50,270 in 2023-24. Paying class 4 NIC to HMRC requires registering as an employer and keeping accurate records. You must also submit regular reports like annual tax returns and payroll details.

Deadline to Fill the State Pension Gap Expended

Fortunately, if you would like to pay the voluntary contributions to pay the gaps in the NI record, do it; the deadline has been extended to April 2025. This means you have more time to fill your contributions to receive a maximum state pension upon retirement.

Suppose your gaps date back to 2006; it will cost you about £800 to top up missing contributions. At current rates, you must add over £300 a year to your state pension. It would take three years to cover the costs or result in £6,000 over a standard 20-year retirement period.

Paying the NIC through your Company

If you're a limited company director, you're supposed to pay primary and secondary class NIC via the HMRC PAYE system as your business payroll.

Whenever you pay employee salaries or your director salary, the payroll software will:

Calculate and subtract income tax and primary NIC from every employee's wages
Calculate employers' NI payable by the business on earnings over £242 a week

Ensure you report these deductions and payments to the HMRC on FPS (complete payment submission) before every payday. Then, the company must pay the primary and secondary NIC to HMRC by the 19th of the following month if you're paying by post or the 22nd if you're paying online.

Do I pay NIC on Dividends?

You can't pay NIC or income tax on the dividend payments you get from shareholdings. You only pay lower rates of dividend tax depending on your income tax.

Final Thought

Paying NIC via a limited company is a seamless process when you have accounting software to ensure your contributions are calculated accurately. Since doing it independently is complex, you should contact an accountant for help and advice when handling payroll.

Do you have any queries or would like assistance with a limited company in the UK, whether abroad or within the UK? Don't hesitate to contact us and speak to our company formation agents.