National Insurance Explained

What Is National Insurance?

National Insurance is a tax on earnings and profits that funds specific state benefits. It was introduced in 1911 as a form of social insurance, and the core idea remains the same today: you pay in during your working life, and in return you build entitlement to the state pension, Maternity Allowance, and contribution-based Jobseeker’s Allowance.

Although NI and income tax are both collected by HMRC, they are legally separate. You have a unique National Insurance number (your NI number, in the format QQ 12 34 56 A) which tracks your contribution record throughout your life. This record determines whether you qualify for the state pension and how much you receive.

There are several classes of National Insurance. The class you pay depends on whether you are employed, self-employed, or voluntarily topping up your record. Each class has different rates and thresholds.

Who Pays National Insurance?

Almost everyone who works in the UK and earns above a certain threshold pays National Insurance. This includes employees, self-employed people, and employers. The rules differ for each group.

Employees pay Class 1 NI. It is deducted from your wages by your employer through the PAYE system, so you do not need to do anything yourself. You start paying once your earnings exceed the primary threshold.

Self-employed people pay Class 2 and Class 4 NI. Class 2 is a flat weekly amount, and Class 4 is a percentage of your profits. Both are calculated and paid through your annual Self Assessment tax return.

Employers pay a separate NI contribution on top of what their employees pay. This does not appear on your payslip and does not reduce your take-home pay, but it is a significant cost for businesses.

You stop paying National Insurance when you reach state pension age, even if you continue working. However, you still pay income tax on your earnings after that point.

Class 1 — Employees

Class 1 is the most common type of National Insurance. If you are employed and earn above the primary threshold, your employer deducts Class 1 NI from your pay alongside income tax.

Employee Rates for 2025/26

The primary threshold for 2025/26 is £12,570 per year, which works out to £242 per week or £1,048 per month. If you earn less than this, you pay nothing. If you earn more, you pay 8% on everything between £12,570 and £50,270, and 2% on anything above £50,270.

There is also a lower earnings limit (LEL) of £6,500 per year. If you earn between the LEL and the primary threshold, you do not actually pay NI, but you are treated as if you have for the purposes of building your state pension record. This is an important distinction: you get credit without paying anything.

How It Looks in Practice

On a salary of £40,000, your annual Class 1 NI would be:

• £12,570 at 0% = £0
• £27,430 (£40,000 − £12,570) at 8% = £2,194

That works out to about £183 per month. You can verify this using our salary calculator.

Class 2 and Class 4 — Self-Employed

If you are self-employed and your profits exceed certain thresholds, you pay both Class 2 and Class 4 National Insurance.

Class 2

Class 2 NI is a flat-rate weekly contribution. For 2025/26, the rate is £3.45 per week, which amounts to about £179 per year. You pay Class 2 if your profits are above the small profits threshold of £6,725 per year.

If your profits are below £6,725, you do not have to pay Class 2, but you may choose to pay it voluntarily to protect your state pension record.

Class 4

Class 4 NI is calculated as a percentage of your annual profits and is paid through Self Assessment alongside your income tax.

The Class 4 rate of 6% is lower than the employee Class 1 rate of 8%. However, self-employed people do not receive employer NI contributions, and they are responsible for their own pension arrangements, so the overall package is different.

Employer National Insurance

On top of the NI that employees pay, employers also pay National Insurance on their workers’ earnings. This is sometimes called the “hidden tax” because it does not appear on your payslip, but it directly affects the total cost of employing you.

From April 2025, the employer NI rate is 15% on earnings above the secondary threshold of £5,000 per year. This was increased from 13.8%, and the threshold was lowered from £9,100, making it a significant rise in employment costs.

For a worker on £35,000, the employer NI cost in 2025/26 is 15% × (£35,000 − £5,000) = £4,500. That means employing someone on a £35,000 salary actually costs the business £39,500 before you add workplace pension contributions and other overheads.

Small businesses get some relief through the Employment Allowance, which lets eligible employers reduce their NI bill by up to £10,500 per year. This effectively makes the first few employees much cheaper to hire.

NI Thresholds at a Glance

Here is a summary of the key thresholds for the 2025/26 tax year:

How National Insurance Affects Your State Pension

The most important long-term consequence of paying NI is building your state pension entitlement. Under the new state pension (which applies to anyone reaching state pension age on or after 6 April 2016), you need 35 qualifying years of NI contributions to receive the full amount, and at least 10 qualifying years to receive anything at all.

The full new state pension for 2025/26 is £230.25 per week, which works out to roughly £11,973 per year. If you have fewer than 35 qualifying years, your state pension is proportionally reduced. For example, 25 qualifying years would give you 25/35ths of the full amount.

A qualifying year means you either paid enough NI contributions during that year or received NI credits (for example, while claiming certain benefits, during maternity leave, or while caring for a child under 12 and claiming Child Benefit).

You can check your NI record online through the HMRC personal tax account. It shows how many qualifying years you have, whether there are any gaps, and a forecast of what your state pension might be.

National Insurance Credits

Not everyone is in paid employment for their entire working life. NI credits exist to make sure certain groups of people still build up their state pension record even when they are not working or earning enough to pay NI.

You may automatically receive NI credits if you are:

• Claiming Child Benefit for a child under 12
• Receiving Jobseeker’s Allowance or Employment and Support Allowance
• On statutory maternity, paternity, or adoption pay
• Caring for someone for at least 20 hours a week and claiming Carer’s Allowance
• On jury service

If you are a parent or carer who is not claiming Child Benefit (perhaps because your partner earns over £60,000 and the charge applies), you should still register for Child Benefit and opt out of the payments. This protects your NI record without costing you anything.

Voluntary Contributions — Class 3

If you have gaps in your NI record, you can make voluntary Class 3 contributions to fill them. The rate for 2025/26 is £17.45 per week.

Whether this is worthwhile depends on your situation. Each qualifying year adds roughly £342 per year to your state pension (£11,973 divided by 35). Since the state pension is paid for the rest of your life, filling a gap at a cost of about £907 per year can be excellent value — you would recoup the cost within about three years of receiving the extra pension.

You can usually go back six years to fill gaps, and HMRC sometimes extends this deadline. It is worth checking your record and doing the arithmetic before the deadline passes.

How NI Differs from Income Tax

People often treat NI as “just another tax,” and in practical terms the effect on your payslip is similar. But there are several important differences:

• Threshold alignment: The primary threshold for employee NI (£12,570) matches the personal allowance for income tax, but the employer threshold (£5,000) does not.
• Rate structure: NI has only two rates (8% and 2% for employees), while income tax has three rates above the personal allowance (20%, 40%, 45%).
• Age-based: You stop paying NI at state pension age, but income tax continues regardless of age.
• Benefit entitlement: NI builds your state pension record and entitlement to certain benefits. Income tax does not.
• No personal allowance taper: Unlike income tax, where the personal allowance is reduced once earnings exceed £100,000, the NI primary threshold does not taper.

When you combine both deductions, the total marginal rate on earnings between £12,570 and £50,270 is 28% (20% income tax plus 8% NI). Above £50,270 it is 42% (40% plus 2%), and above £125,140 it is 47% (45% plus 2%).

NI and Salary Sacrifice

Salary sacrifice is an arrangement where you give up part of your salary in exchange for a non-cash benefit, most commonly a pension contribution or cycle-to-work scheme. Because your contractual salary is reduced, you pay less NI on the lower amount, and so does your employer.

For example, if you earn £40,000 and sacrifice £5,000 into your pension, you pay NI on £35,000 instead of £40,000. That saves you 8% × £5,000 = £400 per year in NI alone, on top of the income tax saving. Your employer also saves 15% × £5,000 = £750. Some employers share their saving with you by adding extra to your pension.

This is one reason salary sacrifice pension contributions are popular. They are more tax-efficient than personal pension contributions where you only reclaim income tax relief, not NI relief.

Key Points to Remember

• National Insurance is a separate system from income tax, with its own rates and thresholds.
• Employees pay 8% on earnings between £12,570 and £50,270, and 2% above that.
• Self-employed people pay Class 2 (flat rate) and Class 4 (6% / 2%) on profits.
• Employers pay 15% above the £5,000 threshold from April 2025.
• You need 35 qualifying years of NI for the full state pension (£230.25 per week in 2025/26).
• NI credits protect your record during periods of caring, unemployment, or illness.
• Voluntary Class 3 contributions can fill gaps and are often good value.
• You stop paying NI at state pension age, but income tax continues.

To see exactly how much NI you pay on your salary, try our salary calculator. It shows both your income tax and NI deductions, broken down by month and year.