Domesday Live

What is National Insurance?

National Insurance is a tax on pay, paid by employees, employers and the self-employed. It counts towards the state pension and some benefits, but in practice it goes into the same pot as other taxes and pays for public services in general.

Why it happens

• Who pays. Employees pay it from their wages and employers pay it on top, for each employee. Self-employed people pay a different rate on their profits.
• What it earns you. Paying enough National Insurance builds up qualifying years for the state pension and some benefits, which is why it is called insurance.
• In practice it is a tax. The money is not saved up for your own pension. Today's contributions help pay for today's pensions and other spending, and the government tops up any shortfall.
• It is a very large source of money. After income tax, National Insurance brings in the most money for the government, so changes to its rates have a large effect on the public finances.