In general, most contractors entering the UK will have the same set of questions when they receive their first paycheck, the one question that stands out is, what is National Insurance and why do I need to contribute to it? Your NI Number acts almost like your own personal account number.
The number ensures that NI contributions and the tax you are paying are recorded correctly in your records. You pay Insurance to accumulate your right to certain social security benefits, including State Pension, unemployment pay, and disability benefits. This number also acts as a reference number for the entire UK social security system. The National Insurance of each employee is made up of two parts, namely Employee and Employers NI.
There are several ways you can reduce your obligations. The primary way for contractors to accomplish this is to use the services of an Umbrella Company or Limited Company. In these payroll structures, contractors can greatly reduce their taxable income by claiming expenses that are entirely and solely for business purposes. This, in turn, reduces the contributions owed. Another way you can save is by claiming a refund.
Most contractors are unaware that they can claim back contributions while working in the UK. It is worth mentioning that you cannot claim all of your contributions, but only a part of them. The refund allows you to transfer all the money from your second state pension to a personal pension policy that is created in your name. A refund from National Insurance can be claimed at any time and only needs to be done once, please note that you cannot claim your back dated NI, you can only claim for the current tax year and subsequent years.