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National Insurance explained

What National Insurance is, how much you pay, and why it appears separately on your payslip alongside income tax.

Last updated: April 2025 · Based on HMRC 2026/27 rates

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 £50,2702%
NI contributions dropped from 12% to 10% in January 2024, then to 8% from April 2024. This was a significant change — a worker on £35,000 saves around £450/year compared to 2023 rates.

Worked example: £40,000 salary

Example — gross salary £40,000
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

Example — gross salary £60,000
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.

Why salary sacrifice saves double: When you contribute to a pension via salary sacrifice, your NI-able pay falls. This means your employer also saves 13.8% NI on the sacrificed amount. Some employers pass this saving back to employees as an extra pension contribution — worth asking about.

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.

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