Orlando Harmon
In the UK, National Insurance (NI) is a tax paid by employees, employers, and the self-employed. Those over the state pension age do not pay NI, even if they are working. While the main NI rates have not increased, the thresholds at which people start paying have not risen in line with inflation, resulting in more people paying higher taxes. In Scotland, the tax system is based on marginal tax rates, meaning that as income increases, the amount of tax paid also increases. From 6 April 2025 to 5 April 2026, the UK government reduced the main Class 1 National Insurance rate paid by employees to 8%, also applying to Scotland. This change resulted in Scots with earnings of up to £112,900 paying less overall compared to the previous year.
| Characteristics | Values |
|---|---|
| Who pays National Insurance? | Employees, employers, and the self-employed across the UK. |
| Who is exempt from National Insurance? | Those over the state pension age, even if they are working. |
| When do workers start paying National Insurance? | When they turn 16 and earn more than £242 a week, or have self-employed profits of more than £12,570 a year. |
| What is the main Class 1 National Insurance rate for employees in Scotland? | 8% |
| What is the National Insurance rate for self-employed workers in Scotland? | 10% on earnings between £12,570 and £50,270, 2% on income and profits above £50,270. |
| What is the National Insurance rate for employers in Scotland? | 15% on salaries above £5,000. |
| Who decides the Income Tax rates and bands payable by Scottish taxpayers? | The Scottish Parliament. |
| Who determines whether an individual is a Scottish taxpayer? | Her Majesty's Revenue and Customs (HMRC), based on the individual's main place of residence. |
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What You'll Learn
National Insurance rates for employees
National Insurance is a contribution paid by employees, employers, and the self-employed across the UK. The National Insurance rate for the main Class 1 contributions paid by employees in Scotland is 8%. This rate is the same across the UK and has been reduced from 12% and then 10% in 2024. For self-employed workers, Class 4 NI contributions on earnings between £12,570 and £50,270 are at 6%, while the NI rate on income and profits above £50,270 remains at 2% for all workers.
In Scotland, employers will have to pay a National Insurance rate of 15% on salaries above £5,000 from 6 April 2025 to 5 April 2026. This is an increase from the previous rate of 13.8%. Employers also pay Class 1A and 1B National Insurance on expenses and benefits they give to their employees, at a rate of 15%.
Scottish taxpayers pay a different rate of income tax called the 'Scottish rate of Income Tax', which is based on marginal tax rates. This means that the percentage of income tax paid increases as income increases. Scottish Income Tax applies to wages, pensions, and most other taxable income. However, the rate of tax on dividend income and savings interest is the same as the rest of the UK.
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National Insurance rates for the self-employed
If you are self-employed in Scotland, you are responsible for paying tax and National Insurance on your income. The rate of National Insurance you pay depends on your profits. If you expect to earn more than £1,000, you must register for Self Assessment by 5 October of the following tax year. The tax year runs from 6 April to 5 April.
For the 2024/25 tax year, you must pay Class 4 contributions if your profits are more than £12,570 a year. The Class 2 rate for this tax year is £3.45 a week. You can choose to pay voluntary Class 2 contributions. Most people pay Class 2 and Class 4 National Insurance through Self Assessment.
The bands have changed for the 2025/26 tax year. If you earn over £125,140, you’ll pay 45% additional rate tax on all your trading profits. You can use the Self-employed ready reckoner to get an idea of how much tax and National Insurance you’ll need to pay.
It is important to note that if you move to or from Scotland during the tax year, you will be considered a Scottish taxpayer if you live in Scotland for at least as much of the tax year as you live in any other country in the UK. Scottish taxpayers pay the Scottish rate of Income Tax, which is based on marginal tax rates. This means that the percentage of income tax you pay increases as your income increases.
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National Insurance rates for employers
National Insurance is a UK-wide policy, and as such, the National Insurance rates for employers are the same in Scotland as in the rest of the UK.
On 30 October 2024, the Chancellor of the Exchequer announced that the secondary Class 1 rate of employer National Insurance Contributions (NICs) would increase from 13.8% to 15% from 6 April 2025. This means that from 6 April 2025 to 5 April 2026, employers will pay a 15% rate on expenses and benefits they give to their employees. This includes redundancy payments. Employers will now start to pay NICs on any employee's earnings over £5,000, instead of the previous threshold of £9,100.
The Scottish Government calculated that this change would cost the public sector in Scotland around £500 million in the financial year 2025-2026. This includes a £191 million cost to the NHS and a £37 million cost to Police, Fire and Prison services. The First Minister has recognised that this increase will have a significant impact on the voluntary sector in Scotland, which is estimated to cost around £75 million.
It is important to note that Scotland has its own income tax policy, called the 'Scottish rate of Income Tax'. This means that taxpayers whose main home is in Scotland will pay a different rate of income tax than those in the rest of the UK. However, National Insurance rates and policies are set at a UK-wide level and are not specific to Scotland.
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Scottish Income Tax
If you live in Scotland, you pay a different rate of tax called the "Scottish rate of Income Tax" or "Scottish Income Tax". This tax applies to your wages, pension, and most other taxable income. However, you will still pay the same rate of tax on dividend income and savings interest as the rest of the UK.
Her Majesty's Revenue and Customs (HMRC) will determine whether you are a Scottish taxpayer based on where your main place of residence is. Your main home is usually where you live and spend most of your time. It doesn't matter whether you own it, rent it, or live in it for free. If you move to or from Scotland during the tax year, you will be considered a Scottish taxpayer if you live in Scotland for at least as much of the tax year as you live in any other country in the UK.
The Income Tax rates and bands payable by Scottish taxpayers are set by the Scottish Parliament. The tax system is based on marginal tax rates, which means it is calculated as a percentage of income earned within certain thresholds. As your income increases, so does the amount of Income Tax you pay. The money collected from Scottish Income Tax is paid to the Scottish Government.
In April 2024, a new 45% band took effect in Scotland, and the top rate rose from 47% to 48%. This means that Scots with earnings above £75,000 will pay more in income tax, while those with earnings under £112,900 will pay less in tax and National Insurance overall compared to the previous year.
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National Insurance changes over time
National Insurance contributions (NICs) have undergone several changes over time in the UK. NICs are a tax paid by employees, employers, and the self-employed on their earnings. Here is a timeline of some significant changes:
April 2022
The rates of NICs increased by 1.25 percentage points, resulting in a higher tax bill for most taxpayers. This increase was legislated to boost spending on health and social care.
July 2022
The NICs threshold was increased to £12,570, reducing tax bills for many taxpayers.
April 2024
National Insurance was cut for both employees and the self-employed, resulting in tax cuts for average earners.
April 2025
Employers' National Insurance rates increased from 13.8% to 15%, impacting businesses across the UK. Additionally, the threshold at which employers start paying NICs was lowered from £9,100 to £5,000, bringing more staff into the taxable bracket.
These changes to National Insurance rates and thresholds have had varying impacts on taxpayers and businesses in the UK, including Scotland. While some individuals may benefit from reduced National Insurance contributions, businesses have faced rising costs, which could affect hiring decisions and pay increases.
In Scotland, taxpayers pay the ''Scottish rate of Income Tax', which is based on marginal tax rates. This means that as income increases, the amount of Income Tax paid also increases. While National Insurance changes in the UK have impacted Scots' take-home pay, the Scottish Government's tax choices have also resulted in higher-earning Scots paying more income tax. These interactions between UK-wide and Scottish tax policies can lead to varying financial outcomes for Scottish taxpayers.
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Frequently asked questions
The National Insurance rate in Scotland is determined by the UK government and applies across the UK. From April 2025 to April 2026, the main Class 1 National Insurance rate paid by employees will be 8%. The National Insurance Class 1A and 1B rates on expenses and benefits will be 15%.
National Insurance is paid by employees, employers, and the self-employed in Scotland. Employers pay Class 1A and 1B National Insurance on expenses and benefits they provide to their employees. Employees start paying National Insurance when they turn 16 and earn above the threshold.
National Insurance is calculated based on payroll software, which determines how much tax and National Insurance to deduct from employees' pay. The amount deducted depends on the employee's tax code and taxable income above their Personal Allowance. Employers can also use calculators and tables to check employees' National Insurance rates.
