Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
For the 2026-27 tax year, an employer pays 15% National Insurance on almost every pound a category A employee earns above £96 a week, but 0% on the same pay for an employee under 21, up to £967 a week [1]. That difference is delivered through a single letter on the payroll record: category M, which HMRC describes simply as "Employees under 21" [2].
The relief has existed since April 2015, when a 0% rate of secondary Class 1 contributions was introduced for under-21s [3]. It applies to new and existing employees, does not exclude any employer, and needs no claim form: the payroll applies it automatically once the right letter is set [3].
For hospitality, retail and care employers with young staff, category M can be worth thousands of pounds a year. Missing it means overpaying employer National Insurance; keeping it after a 21st birthday means underpaying, which later has to be corrected through RTI [4].
This guide explains what category M does, how it differs from letters A, Z, H and V, how much it saves at different pay levels, how it interacts with Employment Allowance and the Apprenticeship Levy, and how to fix a wrong letter on the FPS. Every National Insurance figure in the worked examples was computed by a payroll engine implementing HMRC's 2026-27 rules.
Key takeaways
- Category M applies to employees under 21 and gives a 0% employer rate on earnings up to the upper secondary threshold, which is set at the same level as the Upper Earnings Limit [2] [5].
- Employee contributions under category M are the same as under category A: 8% between the primary threshold and the upper limit, and 2% above [1].
- Category Z is the deferred equivalent for under-21s already paying National Insurance in another job [2] [6].
- Apprentices under 21 use category H, not M [7].
- The relief stops when the employee reaches 21, and a wrong letter is corrected on the next FPS [3] [4].
What NI category M is
Every employee on a UK payroll has a National Insurance category letter. The letter tells the payroll which employee and employer rates to apply to each band of earnings, and it is reported on every Full Payment Submission.
Who qualifies
Category M is for employees under the age of 21 [2]. HMRC's manual introduced it as the under-21 equivalent of category A for "standard rate contributions", alongside letter Z as the equivalent of category J for deferred contributions [6]. Mariners have their own pair of under-21 letters, Y and P [6].
The only condition is age. HMRC states that the zero rate "applies to new and existing employees and does not exclude any employees or employers" [3]. The employer remains liable for Class 1 contributions in principle, and its duty to operate statutory payments such as SSP and SMP is unaffected [3].
Where it sits among the category letters
Category M is one of several letters that remove or reduce employer National Insurance. The table lists the letters an employer of young staff is most likely to meet.
| Letter | Who it is for | Employer rate up to £967 a week |
|---|---|---|
| A | Employees not in another group | 15% above £96 |
| M | Employees under 21 | 0% |
| Z | Under 21, deferring because of another job | 0% |
| H | Apprentices under 25 | 0% |
| V | Veterans in first civilian job | 0% |
| X | Not liable, for example under 16 | No NI |
Sources: HMRC category letters [2] and National Insurance rates [1].
How the category M calculation works
Category M changes only the employer side of the calculation. The employee pays exactly what a category A employee on the same pay would pay.
The upper secondary threshold
The 0% employer rate does not run indefinitely. Section 9A of the Social Security Contributions and Benefits Act 1992 created an Upper Secondary Threshold for under-21s, introduced "at the same amount as the Upper Earnings Limit" and re-rated annually [5]. Above that threshold, the normal secondary rate applies [3].
For the 2026-27 tax year, the rates page shows the category M employer rate as 0% on weekly earnings from £96 up to £967 and 15% above £967 [1]. The thresholds that matter for category M are shown below.
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Secondary Threshold | £96 | £417 | £5,000 |
| Primary Threshold | £242 | £1,048 | £12,570 |
| Upper Secondary Threshold (under 21) | £967 | £4,189 | £50,270 |
Sources: National Insurance rates [1] and NIM01297 [5].
Employee and employer rates side by side
The rates page sets out each letter's rates band by band. For category M, the employee rates are 0%, 8% and 2%, identical to category A, while the employer rates are 0%, 0% and 15% [1]. Category Z keeps the same employer rates but applies the deferred employee rate of 2% in the main band [1] [2].
| Weekly earnings band | Employee (A and M) | Employee (Z) | Employer (A) | Employer (M and Z) |
|---|---|---|---|---|
| £96 to £242 | 0% | 0% | 15% | 0% |
| Above £242 up to £967 | 8% | 2% | 15% | 0% |
| Over £967 | 2% | 2% | 15% | 15% |
Source: National Insurance rates and categories [1].
Worked examples
The examples below compare category M with category A on the same gross pay, using the standard 1257L tax code in England. HMRC's own manual examples use the rates of an earlier tax year, so the figures here are recomputed on the 2026-27 rules [8].
A part-time worker paid weekly
A 19-year-old earning £400 a week under category M pays £12.64 in employee National Insurance, and the employer pays nothing [1]. Under category A, the same pay would cost the employer £45.60 a week [1]. If the employee instead holds a deferment because of another job and is on category Z, employee contributions fall to £3.16 while the employer still pays nothing [2].
A full-time salary paid monthly
An employee under 21 on £2,000 a month pays £76.16 of employee National Insurance under either letter [1]. The employer pays £0 under category M and £237.45 under category A [1] [8].
Over a full year on £22,000, the employee pays £754.40 under both letters, and the employer contribution is £0 under category M against £2,550 under category A [1] [5].
Earnings above the upper secondary threshold
Higher earners under 21 still trigger employer contributions on the slice above the threshold. On £4,800 a month, the employee pays £263.50 under either letter, the employer pays £91.65 under category M (15% of the £611 above £4,189), and £657.45 under category A [1] [3].
The weekly equivalent works the same way. On £1,000 a week, category M leaves the employer paying £4.95 on the £33 above £967, compared with £135.60 under category A [1].
Category M and the other reliefs
Young employees can qualify for more than one relief at once. HMRC sets an order of precedence so that each employee carries a single letter for each payment.
Apprentices under 21 use category H
Category H covers apprentices under 25 and has the same employer rates as category M [2] [1]. HMRC's manual is explicit that "an apprentice under the age of 21 will use these category letters rather than those which are used for employees under 21" [7].
To use category H, the employer must check the date of birth, confirm that the apprenticeship is a qualifying scheme and hold the correct evidence [7]. In England, the relief lasts only for the duration of an approved apprenticeship agreement [9]. Moving an apprentice to category H at 21 rather than to A keeps the zero employer rate until the apprentice turns 25 or completes the apprenticeship.
Veterans and the most appropriate relief
Category V gives a zero employer rate for veterans in their first civilian job, and HMRC's manual says that where a veteran is also entitled to H, M or Z, the employer should "select the most appropriate relief" [10]. The veterans relief has been available since April 2021 [11].
| Situation | Letter to use |
|---|---|
| Employee under 21, no other job | M |
| Employee under 21, deferment held | Z |
| Apprentice under 21 | H |
| Apprentice aged 21 to 24 | H |
| Employee aged 21 or over, standard | A |
| Under 16 | X |
Sources: NIM01310 [7] and HMRC category letters [2].
The age boundaries at 16 and 21
Category M sits between two age boundaries, and both create payroll actions.
Starting work at 16
Employees under 16 do not pay National Insurance, and employers use category X for them [2]. Government guidance on child employment notes that once someone reaches 16, the employer may need to pay them through PAYE [12]. Most young people receive a letter confirming their National Insurance number shortly before their 16th birthday [13].
The move from X to M is driven by the date of birth on the payroll record. Employers must collect the employee's date of birth when they start, along with address, gender and start date [14]. A missing or wrong date of birth is the single most common reason a young employee ends up on the wrong letter.
Reaching 21
HMRC states that the 0% rate "will no longer apply" once the employee reaches the age of 21 [3]. The upper secondary threshold likewise stops applying at 21 [5]. From that point the employee moves to category A, or to J if a deferment is held, unless another relief such as H applies.
The 21st birthday also changes pay. From April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour, against £10.85 for those aged 18 to 20 [15]. An employer reviewing a young worker's file at 21 therefore needs to update both the category letter and the hourly rate [15].
Pay, hours and statutory pay for young employees
Category M changes the employer's National Insurance bill, but it does not change any of the employment rules that apply to the same young workers. Payroll teams set up the letter at the same time as several other age-dependent settings.
Setting up a first young hire
Government guidance on employing someone for the first time lists checking that the person is an employee, checking the National Minimum Wage and registering with HMRC to run PAYE as the first steps [21]. For school leavers, child employment rules allow full-time work only once the minimum school leaving age is reached, with a maximum of 40 hours a week, and adult employment rules apply from 18 [12].
Apprentices are paid on a separate scale. An apprentice aged 16 to 18, or aged 19 or over in the first year, is entitled to the apprentice rate of £8 an hour, and at least 20% of normal working hours must be spent on training [22]. After the first year, an apprentice aged 19 or over moves to the minimum wage for their age [15].
Statutory pay under category M
Young employees qualify for statutory payments on the same terms as everyone else, and the zero employer rate does not remove the employer's duty to pay them [3]. Statutory Sick Pay is £123.25 a week or 80% of average weekly earnings, whichever is lower, for up to 28 weeks [23]. Statutory Maternity Pay after the first 6 weeks is £194.32 a week or 90% of average weekly earnings if lower [24].
Those payments are earnings for National Insurance and are added to the employee's other pay in the earnings period [25]. Under category M, that means employee contributions can still arise on statutory pay above the primary threshold, while the employer side stays at 0% up to the upper secondary threshold [1].
Earnings periods and irregular hours
The thresholds in the tables above apply per earnings period, and for regular payments only the interval of payment matters [26]. A student paid weekly for a few shifts can sit below £96 in one week and above £242 in the next, so the category M saving varies week by week even though the letter stays the same [1]. HMRC's employer guide for the 2026-27 tax year sets out the full set of earnings periods, from weekly to annual [27].
Category M alongside Employment Allowance and the levy
Category M interacts with two other employer-side measures, and neither cancels it out.
Employment Allowance
Employment Allowance lets eligible employers reduce their annual employer National Insurance liability by up to £10,500 [16]. A company whose only employee liable for secondary contributions is its sole director cannot claim [17].
Because category M removes employer contributions on most under-21 pay, a business with many young staff can find that its remaining liability is below £10,500, leaving part of the allowance unused. The two measures stack in sequence: category M reduces the liability first, and Employment Allowance is then set against what remains [16] [1].
Apprenticeship Levy
The Apprenticeship Levy is charged at 0.5% of an employer's annual pay bill, with a £15,000 allowance, and only employers with a pay bill above £3 million report it monthly [18]. HMRC's guidance states that the pay bill must include payments to employees under 21 and apprentices under 25, even though no employer National Insurance is due on much of that pay [18]. Earnings of employees under 16 are excluded [18]. Larger employers can read more in the Apprenticeship Levy guide.
Reporting and correcting category M through RTI
The category letter travels with every Full Payment Submission, and HMRC uses it to check the contributions reported. An HMRC-recognised payroll platform for SMEs sets the letter from the date of birth and switches it on the right payment date.
Reporting a change of letter
When an employee's letter changes during the tax year, the employer continues to report all categories used, unless a category should never have been used at all [19]. In practice an employee who turns 21 mid-year shows year-to-date figures under M and under A on the same FPS, with zeros in the current period fields for M [4].
Fixing a wrong letter
If the wrong letter was used in the current tax year, HMRC's instruction is to report the mistake on the next FPS, entering "0" in the National Insurance fields for the wrong letter and adding the correct letter with the correct year-to-date figures [4]. For tax years between 6 April 2020 and 5 April 2026, the employer sends an additional FPS with the correct letter and year-to-date National Insurance [4].
Corrections should be made as soon as possible, on the next FPS or an additional FPS [19]. Where an employer has been overpaying on category A for an eligible under-21, the correction generates a refund of employer contributions; where category M has been kept after a 21st birthday, it generates an underpayment that must be settled [4].
Running category M at scale
For a single employer, category M is a date-of-birth check. For a bureau running dozens of payrolls, it becomes a recurring control: every client's staff list needs a report of employees turning 21 in the next pay period. A multi-client payroll dashboard can surface those upcoming changes across every client in one view.
Platforms that embed payroll into HR or workforce software face the same issue in code. With an HMRC-recognised payroll API, the category letter can be derived from the date of birth and apprenticeship flag at calculation time, so no one has to remember to change it. The guide to employer National Insurance covers the wider set of thresholds and reliefs.
Check the saving on any salary
To compare category M with category A on a specific wage, the Moonworkers UK salary calculator applies the 2026-27 PAYE and National Insurance rules to any gross pay and category letter.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category. If in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Category M is one of the simplest reliefs in UK payroll to apply and one of the easiest to get wrong. It needs no claim, only an accurate date of birth and a payroll that changes the letter at the right moment, yet the difference between M and A on a single full-time young employee runs to thousands of pounds of employer National Insurance each year.
The control that matters is at the edges: the first payment after a 16th birthday, the first payment after a 21st, and the apprentice who should move to H rather than A. Payroll that derives the letter from the employee's data rather than from a manual setting removes most of that risk, and keeps the relief working as young staff join, grow and move on.
FAQs
Does category M reduce the employee's own National Insurance?
No. Category M only removes employer contributions on earnings up to the upper secondary threshold [1]. The employee pays the same 8% and 2% rates as a category A employee on the same pay, so take-home pay is unchanged [2].
Does the employer have to claim the under-21 relief from HMRC?
No claim is needed. The relief applies automatically when the payroll uses category M and reports it on the FPS [3]. The employer only needs the employee's correct date of birth on the payroll record [14].
What happens if an under-21 employee earns more than £967 a week?
The employer pays 15% on the earnings above £967 a week and 0% below it [1]. The upper secondary threshold for under-21s is set at the same level as the Upper Earnings Limit, so only the top slice of a high wage attracts employer contributions [5].
Can a company director under 21 use category M?
Category M applies to any employee or office holder under 21, as the relief excludes no employees or employers [3]. Directors follow their own earnings-period rules, which HMRC's employer guide refers to the separate CA44 booklet for company directors [27] [20].
