Generally, most contractors who enter the UK will have the same set of questions when receiving their first pay cheque, the one question that features prominently is, what is National Insurance and why do I need to contribute to it? Your NI Number acts almost as your own personal account number.
The number ensures that the NI contributions and tax you are paying is properly recorded onto your records.
You pay Insurance to build up your entitlement to certain social security benefits, including the State Pension, unemployment pay and incapacity benefits.
This number also acts as a reference number for the entire UK social security system.
Each employee's National Insurance is made up of two parts, namely, Employee and Employers NI.
There are various ways to in which you can reduce your obligations.
The main way for contractors to accomplish this is to utilise the services of an Umbrella Company or a Limited Company.
In these payroll structures, contractors are able to vastly reduce their taxable pay by claiming expenses that are wholly and exclusively for business purposes.
This, in turn reduces the contributions due.
Another way in which you can save is by claiming a rebate.
Most contractors are unaware that they are able to claim back contributions whilst working in the UK.
It must be mentioned that you cannot claim your full contributions but only a portion thereof.
The rebate allows you to transfer all monies from your 2nd state pension into a personal pension policy which is set up under your own name.
A National Insurance rebate can be claimed at anytime and only needs to be done once, it should be noted that you cannot back date claim your NI , you can only claim for the current tax year and years going forward.