National Insurance explained

NICs fund the state pension

The National Insurance system pays for a number of benefits and the retirement pension.

Most people who work have to pay National Insurance Contributions (NI) unless they are one of the groups who are exempt from the system.

There are six types of NI, but which one will depend on someone's status, for example, whether they are employed, self-employed, not employed or an employer.

Payment of Class 1 contributions gives entitlement to benefits, including the Jobseeker's Allowance, Incapacity Benefit, a Widows Pension, Maternity Allowance and the Retirement Pension.

All employees are liable to pay Class I NI and the self-employed are liable to pay Class 2 and Class 4 (which is paid on profits above a certain level).

NI contacts Refunds Group, Revenue & Customs, National Insurance Contributions Office, Benton Park Road, Longbenton, Newcastle, NE98 1ZZ NI Self employed helpline: 0845 9154655 Switchboard: 0191 213 5000

If you are an employee but leave your work to become self-employed, you will then be liable to pay Class 2 NI for every week of self-employment as long as you fulfil the other key criteria of age and eligibility.

It is your responsibility to notify the Revenue of any relevant change in your employment status.

The self-employed are also liable to pay Class 4 NI on any profits between specified lower and upper limits. If you earn less than £5,225 (tax year 2007 to 2008) you do not have to pay NI.