Jeffrey Wade
National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, entitling workers and their families to certain state benefits. The amount of National Insurance paid depends on one's employment status and earnings. Employers are required to make separate National Insurance contributions on their employees' earnings, which are calculated based on factors such as the employees' category letters. For employees, the National Insurance rate is typically 8% on income between £12,570 and £50,270 per year, while self-employed individuals contribute through a percentage of net profits above a certain threshold.
| Characteristics | Values |
|---|---|
| Who pays National Insurance | Employers and employees |
| When to start paying National Insurance | When you turn 16 and earn over a certain amount |
| How much National Insurance to pay | Depends on your employment status and how much you earn |
| National Insurance rates for the 2025-2026 tax year | 8% on income of £12,570 to £50,270 a year (£1,048 to £4,189 a month) |
| National Insurance rate for income over £50,270 a year | 2% |
| Class 2 National Insurance contributions | £3.45 a week if self-employed profits were £12,570 or more |
| Class 4 National Insurance contributions | 6% on earnings between £12,570 and £50,270, 2% on profits above £50,270 |
| Class 1A National Insurance rate from 6 April 2025 to 5 April 2026 on expenses and benefits | 15% |
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What You'll Learn
Employee and employer contributions
The amount of National Insurance an employee pays depends on their employment status, their age, and their earnings. Employees pay Class 1 National Insurance, with the rate determined by their income. National Insurance is calculated each time an employee is paid, so the amount paid may vary if their pay changes. Employees can view their contributions on their payslip. Self-employed people contribute through a percentage of net profits above a threshold, which is reviewed periodically.
National Insurance contributions decide an employee's entitlement to certain state benefits, including the State Pension. To receive any amount of the new State Pension, an individual needs at least ten qualifying years of contributions. They will receive the full amount after 35 qualifying years of contributions or credits. Employees can make voluntary contributions to fill gaps in their record. National Insurance contributions stop once an individual reaches State Pension age.
Employers are required to make separate National Insurance contributions on the earnings of their employees. These contributions are not taken out of the employee's pay, so they represent an extra cost for employers. Employers pay a different rate of National Insurance depending on their employees' category letters. Employers must pay Class 1A and 1B National Insurance on expenses and benefits they give to their employees. They must also pay Class 1A on some other lump-sum payments, such as redundancy payments.
The amount of National Insurance an individual pays can change over time. There are new National Insurance rates and thresholds from 6 April 2025. National Insurance rates for most employees are currently 8% on income of £12,570 to £50,270 a year, and 2% on income above £50,270 a year. National Insurance contributions are paid at the same time as Income Tax.
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Self-employed contributions
National Insurance is a tax that funds financial support schemes like the state pension and some benefit schemes. The amount of National Insurance you pay depends on your employment status and earnings. Self-employed workers are responsible for paying their National Insurance contributions, which are separate from employed NI contributions.
Self-employed National Insurance is split into two main types, or "classes": Class 2 and Class 4. With profits between £6,725 and £11,908 a year, self-employed workers pay Class 2 National Insurance, which was £3.15 a week or £163.80 for the 2022/23 tax year. If profits exceed £11,908, self-employed workers pay Class 4 National Insurance, which is calculated as a percentage of their profits. For profits between £11,909 and £50,270, the rate is 9.73%, and for profits over £50,270, the rate decreases to 2.73%.
Class 4 contributions can also be calculated as a percentage of your profits exceeding the threshold, which is the personal allowance of £12,570. This works out at 6% for profits up to £50,270 and 2% for higher profits. Self-employed workers are also entitled to some earnings that are exempt from National Insurance, such as any income below the Lower Earnings Limit (LEL).
Voluntary contributions can be made at the Class 2 rate to prevent or fill gaps in your National Insurance record, ensuring that your access to the state pension is not affected by any time out of work.
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Class 1, 2, 3 and 4 NICs
The amount of National Insurance one pays depends on their employment status and earnings. There are different classes of National Insurance, and the type paid depends on how much one earns and whether they are employed or self-employed.
Class 1 NICs
Employers and employees pay Class 1 National Insurance depending on the employee's earnings. Employers deduct Class 1 contributions from their employees' pay if they earn above £125 per week from one job. If an employee has multiple jobs, they may pay National Insurance through one job and not pay it on the others.
Class 2 NICs
Class 2 NICs are treated as having been paid to protect one's National Insurance record. If one's profits are £6,845 or more, Class 2 contributions are treated as paid.
Class 3 NICs
If one earns between £125 and £242 per week from one job, they usually do not pay National Insurance but may still qualify for benefits and the State Pension. However, they can choose to pay voluntary Class 3 contributions to cover gaps in their National Insurance record.
Class 4 NICs
If one's profits exceed £12,570 per year, they must pay Class 4 contributions. Self-employed individuals pay Class 4 NICs depending on their profits.
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State Pension
National Insurance is important for claiming the state pension. To be eligible to claim a state pension when you reach state pension age, you must have enough qualifying years on your National Insurance record. This record is built from age 16 until you reach state pension age. The number of qualifying years needed depends on when you reach pension age and whether you are claiming the new state pension or the basic state pension.
The new state pension is for those who reached or will reach state pension age on or after 6 April 2016. To get the full new state pension, you usually need 35 qualifying years. The basic state pension is for those who reached state pension age before 6 April 2016. You usually need at least 10 qualifying years on your National Insurance record to qualify for any state pension. If you do not have 10 qualifying years in the UK but have made social security contributions in another EEA member state or Switzerland, or a country with which the UK has a bilateral social security agreement, your periods of overseas contributions can help you satisfy this condition.
A 'qualifying year' is a year when sufficient National Insurance contributions (NICs) have been paid or where you have received National Insurance credits. Class 1 NICs are calculated and paid under PAYE each time an employee is paid, provided the employee earns over the primary threshold. If you earn less than the primary threshold but more than the lower earnings limit, you will be treated as having paid Class 1 NICs for that pay period. Self-employed people earning over the small profits threshold of £6,845 (for 2025/26) are treated as having paid Class 2 NICs. Those with profits below £6,845 a year (for 2025/26) can continue to pay Class 2 NICs to keep their entitlement to certain state benefits. Class 3 NICs are payable per week. National Insurance credits are made for specific weeks in a tax year. For example, if you receive carer's allowance for the first four weeks of the tax year, your NI credits relating to the carer's allowance apply for those specific four weeks.
It is possible to boost the number of qualifying years on your National Insurance record by making voluntary contributions. If you are a member of the LGPS, you are ''contracted out' of the additional State Pension and receive a rebate on your National Insurance contributions. This means that most members of the LGPS pay a lower amount of National Insurance contributions. However, this also means that they will not receive the full amount of the new State Pension.
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Tax relief
The amount of National Insurance one pays depends on one's employment status and earnings. National Insurance is a tax on earnings paid by employees, employers, and the self-employed. It is a compulsory payment taken by the government and is technically considered a social security contribution.
Employees pay Class 1 National Insurance contributions, which are deducted from their gross wages by their employer, along with any income tax due. Employers pay Class 1A and 1B National Insurance on expenses and benefits they provide to their employees, such as redundancy payments. The rate for the 2025-2026 tax year is 15%. Employers also pay a different rate of National Insurance depending on their employees' category letters. Self-employed people pay Class 4 NIC along with income tax on their self-employment profits through self-assessment.
Regarding tax relief, National Insurance contributions (NICs) are not deductible when calculating taxable income for employed or self-employed individuals. Certain expenses that may be deductible for tax purposes may not be deductible for National Insurance purposes. For example, self-employed people were previously required to pay Class 2 NICs, but from the 2024/25 tax year onwards, they are no longer payable. Instead, if their profits exceed a certain level, they are 'treated as having paid' Class 2 NICs, which can count towards entitlement to certain state benefits.
Additionally, there is no NICs relief on personal contributions to private pensions. Individuals pay NICs on the portion of their earnings contributed to a private pension, even though such contributions are exempt from income tax. It is important to note that employed individuals generally stop paying NICs once they reach the state pension age, although there are exceptions for certain self-employed individuals and employers of those over state pension age.
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Frequently asked questions
The National Insurance rate for most employees is 8% on income of £12,570 to £50,270 a year. The NICs rate is 2% for any income over £50,270 a year.
The amount of National Insurance you pay depends on your employment status and how much you earn. Your National Insurance contributions will be calculated based on your Self Assessment tax return.
Yes, employers are required to make separate National Insurance contributions on the earnings of their employees. Employers pay a different rate of National Insurance depending on their employees' category letters.
