National Insurance explained
What National Insurance is, how much you pay, and why it appears separately on your payslip alongside income tax.
What is National Insurance?
National Insurance (NI) is a compulsory contribution paid by employees, employers and the self-employed. Despite what the name suggests, it is effectively a second income tax — the money goes into general government revenue and funds the NHS, state pension, and certain benefits such as statutory sick pay and maternity pay.
As an employee you pay Class 1 National Insurance. Your employer pays a separate employer's NI contribution on top of your salary — you do not see this on your payslip, but it is a real cost of employing you.
Employee Class 1 rates for 2026/27
| Earnings (annual) | Rate |
|---|---|
| Up to £12,570 (Primary Threshold) | 0% |
| £12,571 – £50,270 (Upper Earnings Limit) | 8% |
| Over £50,270 | 2% |
Worked example: £40,000 salary
| Earnings above Primary Threshold (£40,000 − £12,570) | £27,430 |
| NI at 8% | £2,194 |
| Earnings above Upper Earnings Limit | £0 |
| Total NI (annual) | £2,194 |
| Monthly NI | £183 |
Worked example: £60,000 salary
| 8% band (£50,270 − £12,570) | £37,700 × 8% = £3,016 |
| 2% band (£60,000 − £50,270) | £9,730 × 2% = £195 |
| Total NI (annual) | £3,211 |
How NI differs from income tax
There are several important differences between NI and income tax:
- NI has no personal allowance taper above £100,000 — the thresholds are fixed.
- NI is not charged on pension income or investment income, only earned income.
- NI contributions build entitlement to the State Pension — you need 35 qualifying years for the full new State Pension (£241.30/week in 2026/27).
- Salary sacrifice pension contributions reduce your NI-able pay, so you save NI as well as income tax when contributing to a pension this way.
What counts as NI qualifying years?
A qualifying year is any tax year in which you earn at least the Lower Earnings Limit (£6,708 in 2026/27). You do not need to pay NI — just earn above this threshold. You can also get qualifying years through NI credits (e.g. while claiming Child Benefit or being a carer).
If you have gaps in your NI record, you can usually pay voluntary Class 3 contributions (£17.45/week in 2026/27) to fill them — often very worthwhile given the value of an additional State Pension year.
Employer National Insurance
Employers pay 13.8% NI on all employee earnings above £9,100/year (the Secondary Threshold). This is not deducted from your pay, but it means the real cost of employing someone on a £40,000 salary is approximately £44,000 for the employer.
NI and the self-employed
Self-employed people pay Class 4 NI (9% on profits between £12,570 and £50,270, then 2% above) plus a flat-rate Class 2 contribution if profits exceed £12,570. This is handled through Self Assessment, not PAYE.
Frequently asked questions
What are the National Insurance rates for 2026/27?
Employee Class 1 NI is 0% up to £12,570, 8% on earnings between £12,570 and £50,270, and 2% above £50,270.
Is National Insurance the same as income tax?
No. They are separate deductions on your payslip. NI funds the NHS, State Pension and certain benefits, and has fixed thresholds with no taper above £100,000.
How many qualifying years do I need for the full State Pension?
You need 35 qualifying years of National Insurance contributions for the full new State Pension. A qualifying year is one where you earn at least the Lower Earnings Limit.
Does salary sacrifice reduce National Insurance?
Yes. Salary sacrifice pension contributions reduce your NI-able pay, so you save National Insurance as well as income tax.
See the National Insurance taken from your pay.
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