National Insurance Contributions: The Complete UK Guide
The employer rate of National Insurance rose from 13.8% to 15% on 6 April 2026, the largest single upward move in the standard rate in over a decade, and the Secondary Threshold was simultaneously reduced from £9,100 to £5,000 per year [1][2]. Together, the two changes mean every UK employer now pays National Insurance on a wider band of each employee's earnings at a higher rate.
National Insurance contributions are a payroll tax collected through HMRC that funds the UK's contributory benefit system, including the State Pension, Employment and Support Allowance and Maternity Allowance [3]. Every employer with at least one member of staff on the payroll must calculate, deduct and pay both the employee's and the employer's share each period [4]. For most businesses, employer NI is now the single largest payroll cost item other than gross wages.
This guide covers every aspect of National Insurance relevant to UK employers: the different classes, the 2026-27 rates and thresholds, the category letter system, available reliefs, the directors' calculation, and how NI contributions feed into employees' State Pension entitlement. For step-by-step calculation examples, see the companion article on the national insurance calculator.
Key takeaways
- The standard employer NI rate is 15% on earnings above £5,000 per year (£417 per month) from 6 April 2026.
- Employees pay 8% NI on earnings between £12,570 and £50,270 per year, and 2% on anything above.
- Employers pay 0% NI on employees under 21 (category M) and apprentices under 25 (category H) on earnings up to £50,270 per year.
- The Employment Allowance of £10,500 can offset the employer NI bill for eligible businesses.
- Directors are assessed on an annual earnings period, not a weekly or monthly one, which changes when NI first becomes due in the year.
- Employees need 35 qualifying years of NI contributions to receive the full new State Pension.
What National Insurance contributions are
National Insurance is a statutory contribution collected through PAYE on earnings from employment. Employers deduct employee contributions (primary Class 1) from gross pay each period and pay their own secondary contributions on top [3]. The employer's share does not reduce the employee's take-home pay but adds directly to the employer's total labour cost.
NI is reported through Real Time Information: both the employee and employer contributions for every worker appear in the Full Payment Submission sent to HMRC on or before each payday [4]. HMRC-recognised payroll software calculates both the primary and secondary liability automatically and transmits the figures within the FPS, removing the manual step that is the most common source of NI calculation error.
Classes of National Insurance
Several classes of National Insurance exist in UK law. The ones most relevant to employers running a PAYE scheme are set out below [5].
| Class | Who pays | Basis |
|---|---|---|
| Class 1 primary | Employee | Earnings from employment above the Primary Threshold |
| Class 1 secondary | Employer | Earnings from employment above the Secondary Threshold |
| Class 1A | Employer | Expenses and benefits in kind, reported annually on P11D(b) |
| Class 1B | Employer | Items in a PAYE Settlement Agreement |
| Class 2 | Self-employed (flat rate) | £3.65 per week for the 2026-27 tax year |
| Class 3 | Voluntary | To fill gaps in an individual's NI record |
| Class 4 | Self-employed | Profits above the lower profits limit |
For employers operating a PAYE scheme, Class 1 and Class 1A are the material obligations. Class 1A at 15% covers the NI due on benefits in kind (company cars, private medical insurance, gym memberships) and is reported on the P11D(b) return by 6 July following the end of the tax year [4].
Employee NI contributions: rates and thresholds for 2026-27
Employee Class 1 NI (primary contributions) is deducted from the employee's pay. No deduction is made until earnings reach the Primary Threshold. The 2026-27 thresholds and rates are as follows [1][2]:
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Lower Earnings Limit (LEL) | £129 | £559 | £6,708 |
| Primary Threshold (PT) | £242 | £1,048 | £12,570 |
| Upper Earnings Limit (UEL) | £967 | £4,189 | £50,270 |
Earnings between the LEL and the PT are recorded on the payroll but attract no employee NI. This band matters because it generates qualifying years towards the State Pension, even though no cash is deducted [3].
| Earnings band | Employee NI rate |
|---|---|
| Below LEL | 0%, not recorded for NI purposes |
| LEL to Primary Threshold | 0%, but recorded as a qualifying year |
| Primary Threshold to Upper Earnings Limit | 8% |
| Above Upper Earnings Limit | 2% |
For an employee earning £35,000 per year, the employee NI liability is 8% on £22,430 (£35,000 minus the £12,570 Primary Threshold), equal to £1,794.40 per year [6]. The 2% rate applies only to the portion of earnings above £50,270.
The reduced rate: category B
A small number of employees, specifically married women and widows who hold a valid reduced-rate election made before 1977, pay primary NI at a reduced rate of 1.85% on earnings between the PT and UEL, and 2% above the UEL [1]. This election cannot be made today and applies only to existing holders. The employer's rate remains at the standard 15% [4].
Employer NI contributions: rates and thresholds for 2026-27
Employer Class 1 NI (secondary contributions) is payable on earnings above the Secondary Threshold. The 2026-27 thresholds and standard rate are as follows [2][1]:
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Secondary Threshold (ST) | £96 | £417 | £5,000 |
| Upper Earnings Limit (UEL) | £967 | £4,189 | £50,270 |
The standard employer NI rate is 15% on all earnings above £5,000, with no upper limit. Unlike employee NI, the rate does not fall above the UEL: employer NI at 15% continues on every pound of earnings above the Secondary Threshold [1].
A critical feature of the current threshold structure is that employer NI is due on the band between £5,000 and £12,570, even though employees pay no NI on those same earnings. For an employee earning exactly £12,570 per year, the employer pays 15% on £7,570, equal to £1,135.50, while the employee pays nothing in NI.
For accountants running multiple client schemes, this asymmetry between the employer and employee thresholds is one of the most common sources of cost-forecasting error in payroll reviews.
Employment Allowance
Eligible employers can offset up to £10,500 of their Class 1 employer NI liability through the Employment Allowance, claimed via the Employer Payment Summary [7]. The allowance reduces the monthly NI payment to HMRC until the £10,500 is exhausted. It must be reclaimed each tax year.
Most employers with at least one employee other than the sole director qualify. Sole-director companies with no other employees cannot claim. Public authorities are excluded. The previous restriction that barred employers with a prior-year NI bill above £100,000 has been removed, extending eligibility to a wider group of growing businesses [7].
NI category letters: which one applies to each employee
Every employee is assigned an NI category letter that determines the rates applied to their earnings. The correct assignment is one of the most important decisions in payroll setup, because assigning the wrong category produces wrong NI in every subsequent payrun [4][1].
| Category | Who it applies to | Employer NI rate above ST |
|---|---|---|
| A | Standard employee (most employees) | 15% |
| B | Married woman or widow with valid reduced-rate election | 15% |
| C | Employee over State Pension age | 15% (employer pays; employee pays 0%) |
| H | Apprentice under 25 on registered programme | 0% up to £50,270, then 15% |
| J | Employee deferring NI due to multiple employments | 15% |
| M | Employee under 21 | 0% up to £50,270, then 15% |
| V | Armed Forces veteran, first 12 months of civilian employment | 0% up to £50,270, then 15% |
| Z | Employee under 21, also deferring NI | 0% up to £50,270 |
The zero-employer-NI categories (H, M, V) represent a material saving. An employer with five employees all under 21, each earning £25,000, saves 15% on £20,000 per employee per year (earnings above the £5,000 ST), a combined annual saving of £15,000 in employer NI compared with five standard Category A employees.
NI reliefs and exemptions
Under-21s and apprentices under 25
Employer NI for Category M (under 21) and Category H (apprentice under 25) employees is 0% on earnings up to the Upper Secondary Threshold, which equals the UEL at £50,270 per year [1][2]. Above that threshold, the standard 15% applies. The maximum saving per eligible employee relative to a Category A employee can reach £6,790.50 per year (15% of £45,270, being the UEL minus the ST).
Veterans relief (Category V)
Employers who hire ex-Armed Forces personnel in their first civilian role after leaving the military pay 0% employer NI on earnings up to £50,270 for the first 12 consecutive months of that employment [2]. The relief is widely underused: many qualifying employers are unaware of it or have not assigned the correct Category V letter in their payroll system [4].
Freeport and Investment Zone relief
Employees working in a designated Freeport tax site or Investment Zone attract a 0% employer NI rate on earnings up to £25,000 per year, provided the employee spends at least 60% of their working time at the site [2]. The relief runs for up to 36 months per eligible employee. Businesses in qualifying areas that have not reviewed their payroll category assignments since the scheme was introduced may be paying employer NI they do not owe.
Platforms built on the Moonworkers payroll API support all NI category letters, including Freeport categories, natively.
Directors and NI: a different calculation
Company directors are assessed on NI using an annual earnings period rather than the weekly or monthly period used for regular employees [4][6]. The Primary Threshold and Upper Earnings Limit are applied against the director's total cumulative earnings for the year rather than against each individual payment.
A director who takes a low monthly salary followed by a larger payment later in the year will see NI on the total cumulative earnings recalculated when the larger payment is made. The result is that NI can be concentrated in a small number of pay periods rather than spread evenly across the year. Payroll software that does not switch to the annual method for directors will produce incorrect deductions throughout the year and require a corrective calculation in the final pay period.
For director-shareholders in owner-managed businesses, this is one of the most operationally important differences from standard employee payroll. Sole-trader and director payroll built on the Moonworkers engine handles the annual director NI calculation automatically.
NI and the State Pension
National Insurance contributions are the mechanism through which employees accumulate entitlement to the new State Pension [3]. An employee needs 35 qualifying years of NI contributions or credits to receive the full new State Pension, which stands at £221.20 per week for the 2026-27 tax year. Payroll for SMEs that records earnings below the PT accurately protects employees' qualifying years automatically. A qualifying year is any tax year in which earnings of at least £6,708, the Lower Earnings Limit, are recorded on the NI record [8].
Employees with gaps in their record can make voluntary Class 3 contributions to fill those gaps, currently at a rate of £17.45 per week for the 2026-27 tax year [8]. Gaps can generally be filled for the past six tax years. A minimum of 10 qualifying years is needed before any State Pension is payable.
For employers, the State Pension link creates a duty to report all earnings accurately, including those below the Primary Threshold. Earnings between the LEL and the PT carry no NI liability but still count as a qualifying year, and the employee's NI record depends entirely on the employer's FPS data being correct and complete [4].
Conclusion
National Insurance is not a single rate applied to a single earnings figure. It is a layered system of thresholds, category letters and reliefs that produces materially different outcomes for different employees. An employer whose payroll system handles category assignment, threshold calculations and the directors' annual earnings period correctly will avoid the most common sources of NI error. An employer whose system does not will accumulate inaccuracies that surface as a lump correction at year end, or as a penalty after an HMRC compliance review.
The April 2026 rate rise and threshold change made the cost of getting this right substantially higher. An employer with 20 staff on average earnings of £30,000 now pays approximately £75,000 per year in employer NI alone. Understanding which employees attract reduced-rate or zero-rate categories, and whether the Employment Allowance applies, is the difference between paying the right amount and overpaying for an entire tax year.
Frequently asked questions
What is the employer National Insurance rate for the 2026-27 tax year?
The standard employer Class 1 NI rate is 15% on earnings above £5,000 per year (£417 per month) per employee [1]. This rate rose from 13.8% on 6 April 2026. Unlike employee NI, there is no reduced rate above the Upper Earnings Limit for employers: the 15% rate applies on all earnings above the Secondary Threshold with no ceiling.
What is the difference between the Secondary Threshold and the Primary Threshold?
The Secondary Threshold (£5,000 per year) is the point at which employer NI begins. The Primary Threshold (£12,570 per year) is the point at which employee NI begins [2][1]. The gap between them means employers pay NI on earnings between £5,000 and £12,570 where the employee pays nothing. This asymmetry is one of the most misunderstood features of the current NI structure and a recurring source of cost-planning errors.
Who qualifies for zero employer National Insurance?
Employer NI is charged at 0% for employees under 21 (category M), apprentices under 25 on a registered programme (category H), and Armed Forces veterans in their first 12 months of civilian employment (category V), all on earnings up to £50,270 per year [1]. Employees based in designated Freeport or Investment Zone tax sites also attract 0% employer NI on earnings up to £25,000, subject to a working-time condition of at least 60% on site.
Do employers still pay NI for employees who have reached State Pension age?
Yes. Employees who have reached State Pension age stop paying employee NI contributions themselves, but the employer continues to pay secondary Class 1 contributions at 15% on earnings above the Secondary Threshold [1]. These employees are assigned category C. The employer's NI obligation does not end at the point the employee reaches State Pension age.
