National Insurance Contributions (NICs) are a form of tax paid by people in the United Kingdom (UK) to help fund various state benefits, such as the state pension and certain types of employment support.
National Insurance Contributions (NICs) help fund various state benefits, including the state pension and certain types of employment support. You need to be aware of four main types of NICs: Class 1, Class 2, Class 3, and Class 4.
If you are an employee, you are required to pay Class 1 NICs, which are calculated as a percentage of your earnings. In addition, your employer must also pay a portion of Class 1 NICs on your behalf.
Class 2 NICs are for the self-employed, which are calculated as a fixed weekly amount. This type of NIC ensures that self-employed individuals have the same access to state benefits as those employed.
Class 3 NICs are voluntary contributions that individuals can make to help fill any gaps in their National Insurance record, which could affect their entitlement to certain state benefits, such as the state pension.
Class 4 NICs are payable by self-employed individuals and are calculated as a percentage of their profits.
However, your UK National Insurance contributions will cease if you have moved abroad.
According to HMRC, expats are only eligible to pay the lower Class 2 rate if they meet the following criteria. For example, you worked in the UK immediately before becoming an expat, and you previously lived in the UK for at least three years in a row or paid at least three years of contributions.
This makes the UK state pension a compelling investment as for every year you have full class 2 national insurance contributions of only £3.15 per week (2022/2023), you will receive £185.15 per week in return from age 67.
To review your national insurance record, you can visit HMRC’s website and request your state pension forecast. (link below). This will tell you how many years of full and partial contributions you have built up and how many you are short.
https://www.gov.uk/check-state-pension
You can start contributing again and have the ability to make up six years of missing contributions.
Just be mindful that HMRC’s system is not expat friendly. It only has the ability to input a UK address which means it will say you need to pay or backdate class 3 contributions. Class 3 contributions are much higher. I recommend giving HMRC a call.
