What is a National Insurance Category?
A National Insurance category letter is used by an employer to help calculate how much National Insurance they and the employee need to pay. The category is not related to the National Insurance number; it is not the final letter as is sometimes mistakenly assumed.
Why is this important for Payroll?
The National Insurance category letter determines the National Insurance liability for both the company and the employee. This is essential for running the payroll, as if an incorrect category is chosen it can be difficult to correct mistakes at a later date.
The majority of employees will be National Insurance category A. National Insurance category A is the default category, and covers employees not in another category.
What categories are there?
|A||Default category for employees not in another category. Standard rates for employee and employer apply|
|M||Employees under the age of 21. Reduced / Nil Employer contributions|
|C||Employees over the state pension age. Nil employee contributions.|
|H||Apprentices under the age of 25 following an approved apprenticeship framework. Reduced / Nil Employer contributions|
|J||Employees deferring National Insurance because they are paying it in another job|
|Z||Employees under 21 deferring National Insurance because they are paying it in another job|
|B||Married Women and Widows entitled to pay reduced National Insurance. This is not straightforward, see here. We rarely see National Insurance category B employees.|
|X||Employees who don’t have to pay National Insurance, for instance under 16s|
There are also other categories for mariners, see here for further details.
We find National Insurance categories are often poorly understood, and we do sometimes see mistakes made in the payrolls moving to us. There are rumours of possible changes in the Budget on Wednesday, and it is useful to know how the employee and employer liabilities are affected by each category.
There are tables of the rates at the move common categories available here, and further information available from HMRC here.