Paul Sanchez
National Insurance (NI) is a tax on income from employment or profits from self-employment. National Insurance contributions (NICs) are paid by both employed and self-employed workers from the ages of 16 to state pension age. The amount of NICs payable depends on the worker's income and the ''class' of NICs payable. For instance, the main (Class 1) National Insurance rate paid by employees is 8% on all earnings. Self-employed workers pay Class 2 and/or Class 4 National Insurance, depending on their trading profits. Employers also pay separate National Insurance contributions on their employees' earnings, which do not come out of the employee's pay.
| Characteristics | Values |
|---|---|
| Who pays National Insurance contributions | Employed or self-employed workers |
| Who is exempt from paying National Insurance contributions | People who earn below £12,570, are unemployed, or are receiving benefits |
| Age limit | 16 years old and above |
| Type of tax | Tax on income, earnings, and self-employed profits |
| Classes | 1, 2, 3, 4, 1A, and 1B |
| Class 1 rate | 8% |
| Class 1 rate before January 2024 | 12% |
| Class 1 rate from January 2024 to April 2024 | 10% |
| Class 2 rate | £3.45 per week |
| Class 2 rate from April 2024 | Zero rate or payable voluntarily |
| Class 4 rate | 6% on earnings between £12,570 and £50,270, 2% on profits above £50,270 |
| Class 4 rate before April 2024 | 9% |
| NICs rate for income above £50,270 per year | 2% |
| NICs rate for income above £4,189 per month | 2% |
| Class 1A and 1B rate from 6 April 2025 to 5 April 2026 | 15% |
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What You'll Learn
National Insurance contribution classes
National Insurance (NI) is a tax on earnings and self-employed profits in the UK. National Insurance contributions (NICs) are paid into a fund from which some state benefits are paid. These benefits include the state pension, statutory sick pay, maternity leave, and additional unemployment benefits. National Insurance must be paid by both employed and self-employed workers from the ages of 16 to state pension age (currently 66).
There are six different National Insurance classes: Class 1, 1A, 1B, 2, 3, and 4. As an employer, you should be most concerned with the 1, 1A, and 1B classes of National Insurance. Here is a breakdown of each class:
Class 1 National Insurance
Class 1 National Insurance (or Class 1 NIC) is paid by both the employer and the employee. The employee's contribution to the Class 1 NIC is known as the "primary contribution," while the employer's contribution is known as the "secondary contribution." The primary threshold (PT) for 2025/2026 is £242 per week, £1,048 per month, and £12,570 per year. Employers start paying NI at the secondary threshold (ST), which is 15% on each employee's wage that exceeds £96 per week, £417 per month, and £5,000 per year.
Class 1A and 1B National Insurance
Class 1A and Class 1B National Insurance are paid by employers on their employees' expenses or benefits. The rate from 6 April 2025, to 5 April 2026, on expenses and benefits is 15%. Employers must also pay Class 1A on some other lump-sum payments, such as redundancy payments.
Class 2 National Insurance
Class 2 National Insurance contributions are for self-employed individuals who earn over £6,725 in profit per year. These individuals pay a fixed weekly amount of £3.45 (or £179.40 per year) through a Self Assessment tax return. Individuals stop paying Class 2 National Insurance after reaching state pension age.
Class 3 National Insurance
Class 3 National Insurance refers to voluntary contributions from individuals who want to fill or avoid gaps in their National Insurance records. These gaps could result from unemployment, relocation outside the UK, or low-paying employment. The maximum Class 3 NIC one can make is £17.45 per week.
Class 4 National Insurance
Class 4 National Insurance is similar to Class 2, except that the profit threshold is upwards of £12,570 per year. If you are self-employed, you pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.
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Employee NICs
National Insurance contributions (NICs) are paid by employed or self-employed workers. It is a tax on earnings and self-employed profits. NICs are paid into a fund from which some state benefits are paid, including the state pension, statutory sick pay, maternity leave, or entitlement to additional unemployment benefits. National Insurance must be paid by workers from the ages of 16 to the state pension age, which is currently 66.
Employees pay Class 1 NIC on their earnings from employment, such as their salary and bonuses. The amount paid depends on how much is earned in a particular pay period and on the employee's age. If an employee's income is less than the primary threshold for that period, they do not need to pay class 1 NIC on that income. This threshold is £242 a week or £1,048 a month. The actual amount of class 1 NIC paid at the main 8% rate depends on the amount earned up to the upper earnings limit, which is £967 per week or £4,189 per month for 2025/26. Class 1 NIC is calculated week by week or month by month, depending on whether the employee is paid weekly or monthly.
If an employee has two jobs, they may be able to defer payment of NIC in one job if they are paying NIC on weekly earnings of at least £967 throughout the tax year in the other job. If paid monthly, the employee must be paying NIC on monthly earnings of at least £4,189 throughout the tax year in one of the jobs.
If an employee earns less than the lower earnings limit of £125 a week or £542 a month for 2025/26, they pay no class 1 NIC. If they earn above this limit but below the primary threshold, they are treated as having paid NICs without actually having to make a payment. This means that their National Insurance record is registered with contributions at nil cost.
Employees may also need to pay Class 4 National Insurance if they do self-employed work. This depends on their combined wages and self-employed work.
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Self-employed NICs
National Insurance (NI) is a tax on earnings and self-employed profits. Self-employed workers pay Class 4 National Insurance, which is calculated as a percentage of their profits. This is different from employed workers, who pay NI on their income. For the self-employed, NI is paid on profits made from self-employment, which are calculated after deducting business expenses from sales revenue.
The amount of NI that self-employed people pay depends on their profits. If profits are between £12,570 and £50,270, they will pay 6% in NI. If profits exceed £50,270, they will pay 2% in NI. Self-employed workers with profits below £12,570 are not required to pay NI, but they can choose to pay voluntary Class 2 contributions to protect their National Insurance record and ensure they can receive the full state pension when they retire.
Self-employed workers are responsible for paying their National Insurance contributions and must report their personal income to HMRC through self-assessment. They may also have to pay Class 2 National Insurance, which is a fixed amount per week. However, as of April 2024, most self-employed people no longer need to pay this.
National Insurance contributions are important for self-employed workers as they count towards their eligibility for state benefits, including the state pension, statutory sick pay, maternity leave, and additional unemployment benefits. Paying voluntary contributions can help prevent gaps in National Insurance records, ensuring access to these benefits is not affected.
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NICs and state pension
National Insurance contributions (NICs) are paid into a fund from which several state benefits are paid, including the state pension. The state pension is based on an individual's National Insurance record when they reach state pension age. Usually, an individual needs at least 10 qualifying years on their National Insurance record to qualify for any state pension.
Qualifying years are generally tax years in which an individual has paid NICs or was credited with NICs on earnings of at least 52 times the lower earnings limit (LEL). The weekly LEL for the 2025/26 tax year is £125. It is possible to boost the number of qualifying years on one's National Insurance record through making voluntary contributions.
If an individual has gaps in their NICs and does not pay voluntary contributions, this may affect the benefits they can get, such as the state pension. For example, if an individual has received NI credits for a week for which they have also paid Class 2 NICs, there will be a week for which no NICs have been paid or credited. That individual could choose to pay voluntary Class 3 NICs for that week if they wanted to make up a qualifying year for state pension purposes.
Additionally, if an individual has paid NICs at the contracted-out rate, their state pension may be less than the full amount. Furthermore, women who paid reduced National Insurance contributions will have a maximum entitlement of 60% of the basic state pension. Since 2016, any women who have yet to reach state pension age will no longer be eligible for this maximum entitlement. Instead, their pension entitlement will depend on the number of qualifying years of National Insurance contributions they have made.
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NICs and tax
National Insurance Contributions (NICs) are a tax on earnings and self-employed profits in the UK. Both employed and self-employed workers from the ages of 16 to state pension age (currently 66) are required to pay NICs. NICs are paid into a fund, from which some state benefits are paid, including the state pension, statutory sick pay, maternity leave, and additional unemployment benefits.
The amount of NICs payable and the rules for collecting them depend on the 'class' of NIC. Class 1 (primary) NICs are paid by employees, while Classes 1 (secondary), 1A, and 1B are paid by employers. Self-employed individuals pay Classes 2 and 4 NICs, although Class 2 NICs are usually only 'treated as paid' or paid voluntarily. Class 3 NICs can be paid by anyone else, including those not working. The main (Class 1) National Insurance rate paid by employees is 8% on all earnings, including tips for employees in customer-facing roles. For self-employed individuals, Class 4 NICs are calculated based on annual profits, with a rate of 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.
It is important to note that NICs are levied for each earnings period, typically monthly or weekly, without reference to previous pay or NICs deductions. This means that if you are paid monthly and your income varies each month, you could end up paying more NICs on irregular income, such as bonuses. Additionally, NICs are only levied on earnings from employment or profits from self-employment, whereas income tax is levied on all income, including earnings, pension, investment, property, and dividend income.
The number of years of NICs payments or credits can impact an individual's entitlement to the state pension and other contributory benefits. To receive the full new state pension, an individual typically needs to have at least 35 qualifying years of NICs or credits. A reduced amount is provided for fewer years, and nothing is given if there are less than ten qualifying years.
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Frequently asked questions
The main rate is 8% and applies to all earnings, including tips for employees working in customer-facing roles.
Employers pay a different rate of National Insurance depending on their employees' category letters. The rate from 6 April 2025 to 5 April 2026 on expenses and benefits is 15%.
You're normally paid through a Pay As You Earn (PAYE) system. This means your National Insurance contributions are automatically paid from your salary.
You'll pay Class 2 and/or Class 4 National Insurance, depending on your trading profits. You pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, and 2% on profits over £50,270.
The amount of National Insurance you pay affects your entitlement to the state pension and other contributory benefits.
