National Insurance
National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom.
It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their families.
Introduced by the National Insurance Act 1911 and expanded by the Attlee ministry in 1948, the system has been subjected to numerous amendments in succeeding years.
Initially, it was a contributory form of insurance against illness and unemployment, and eventually provided retirement pensions and other benefits.
Self-employed people contribute through a percentage of net profits above a threshold, which is reviewed periodically.
Weekly income and some lump-sum benefits are provided for participants upon death, retirement, unemployment, maternity and disability.
The Beveridge Report in 1942 proposed expansion and unification of the welfare state under a scheme of what was called social insurance.
In March 1943 Winston Churchill in a broadcast entitled "After the War" committed the government to a system of "national compulsory insurance for all classes for all purposes from the cradle to the grave.
"[7] After the Second World War, the Attlee government pressed ahead with the introduction of the Welfare State, of which an expanded National Insurance scheme was a major component.
At that point, responsibility passed to the new Ministry of National Insurance; many of the former approved societies went into liquidation as a result.
[10] An actuarial evaluation of the long-term prospects for the National Insurance system is mandated every 5 years, or whenever any changes are proposed to benefits or contributions.
Such evaluations are conducted by the Government Actuary's Department and the resulting reports must be presented to the UK Parliament.
Class 1, 2 and 3 NICs paid are credited to an individual's NI account, which determines eligibility for certain benefits - including the state pension.
The employer then adds in their own contribution and remits the total to HMRC along with income tax and other statutory deductions.
The cash value of most of these figures normally changes each year, either in line with inflation or by some other amount decided by the Chancellor.
Employers are responsible for allocating the correct table letter to each employee depending on their particular circumstances.
As of January 2020, self-employed National Insurance Contributions (NICs) will be categorised as Class 2 when profits are between £6,365 and £8,631.99 a year.
The main reason for paying Class 3 NICs is to ensure that a person's contribution record is preserved to provide entitlement to these benefits, though care needs to be taken not to pay unnecessarily as it is not necessary to have contributions in every year of a working life in order to qualify.
It is usual to pair off the digits - such separators are seen on forms used by government departments (both internal and external, notably the P45 and P60).
A civil servant working within the Contributions Office (NICO) would have to request paper printouts of an individual's account which could take up to two weeks to arrive.
New information to be added to the account would be sent to specialised data entry operatives on paper to be input into NIRS.
Due to these computer problems, Deficiency Notices (telling individuals of a possible shortfall in their contributions), which had been sent out on an annual basis prior to 1996, stopped being issued; the Inland Revenue took several years to clear the backlog.
[27] In the early 2000s the lower threshold for employee contributions was aligned with the standard personal allowance for Income Tax but has since diverged significantly, as illustrated in the following table.
The 2019-24 government's manifesto in the 2019 general election promised to restore the parity between the NI and Income Tax thresholds by the end of their first term in office.
The limits and rates for the following tax year are normally announced at the same time as the autumn budget made by the Chancellor of the Exchequer.
