This article was written during November 2013 and rules may have changed if you are reading this later. The thresholds mentioned will change slightly each year. You can see the current thresholds here – http://www.hmrc.gov.uk/rates/nic.htm
The Short Answer
Yes – as long as you are taking a salary of more than £5,668 per year you will get your National Insurance ‘stamps’ and eligibility for state benefits including the state pension.
If you are taking a minimum salary of £640 per month (for the 2013/14 tax year) you will not be paying any National Insurance. This leads some people to wonder whether they will remain entitled for the benefits that National Insurance bring.
Historically people have referred to this as getting their national insurance ‘stamps’.
What are the benefits?
The benefits that getting your National Insurance stamp bring includes:
- Basic state pension
- State second pension
- Jobseeker’s Allowance – though not the ‘contribution based’ scheme.
- Employment and Support Allowance
- Maternity Allowance
- Bereavement Benefits
How do I get ‘stamps’?
To be eligible for the above benefits you need to be earning a salary (not dividends or rental income but a salary) higher than what HMRC calls the Lower Earning Limit. In the 2013/14 tax year that was £109 per week (or £5,668 per year).
What’s strange and causes the confusion is that although this is the level where you start to generate the benefits the level where you actually start having to pay National Insurance Contributions is the ‘Primary Threshold’. In the 2013/14 tax year that was £146 per week (or £7,592 per year).
Most Ltd company owners set their salary just below the Primary Threshold so that they can minimise their tax, whilst still being eligible for benefits.
A note about state pensions
We would very strongly recommend that you make separate provisions for your retirement beyond the state pension. The finances of these schemes are a mess and it’s highly unlikely they will exist in their current form in twenty or so years.
You can find out much more about state benefits here – https://www.gov.uk/browse/benefits