What Is National Insurance? A Complete UK Guide
National Insurance contributions raised approximately £205 billion in 2025-26, representing around 16.7% of all UK government tax receipts [11]. From 6 April 2026, the standard employer rate stands at 15%, the highest it has been in over a decade [4]. For every employer in the UK, understanding National Insurance is not optional; it is a legal obligation that runs through every payrun.
National Insurance is a system of compulsory contributions made by employees, employers and the self-employed in the United Kingdom [1]. It is collected alongside income tax under the Pay As You Earn (PAYE) system and sits at the heart of UK payroll compliance. An employer with a single member of staff above the Secondary Threshold pays it every month. A business with hundreds of employees pays it on every pound of wages above £5,000 per year, per worker [4].
This guide explains what National Insurance is, who pays it, how it is calculated, and what it funds. It covers the current thresholds and rates for the 2026-27 tax year, the different NI classes, the reliefs available to employers, and the link between NI contributions and the State Pension.
Key takeaways
- National Insurance contributions raised approximately £205 billion in 2025-26, making it the UK's second-largest tax by revenue.
- The employer rate rose to 15% on 6 April 2026, on all earnings above the Secondary Threshold of £5,000 per year.
- Employees pay 8% on earnings between £12,570 and £50,270 per year, and 2% on earnings above that.
- A qualifying National Insurance record of at least 10 qualifying years is required to receive any new State Pension; 35 qualifying years are needed for the full amount.
- Eligible employers can reduce their NI bill by up to £10,500 per tax year through the Employment Allowance.
What is National Insurance and what does it fund?
National Insurance is a statutory contribution that funds key areas of the UK welfare system, including the State Pension, Jobseeker's Allowance, Employment and Support Allowance, and Bereavement Support Payments [2]. It is collected under primary legislation and administered by HMRC. The revenue does not sit in a ring-fenced fund for individual contributors; it flows into the National Insurance Fund from which benefits are paid.
What NI contributions pay for
The primary purpose of National Insurance is to fund the new State Pension and a range of contributory benefits [2]. A worker's entitlement to these benefits depends on their National Insurance record, specifically the number of qualifying years they have accumulated [6]. A year qualifies when a worker's earnings in that tax year reach or exceed the Lower Earnings Limit (£6,708 per year for the 2026-27 tax year), even if no actual Class 1 contributions are due at that level [3].
The National Insurance number
Every person in the UK is issued a National Insurance number, which stays with them for life [8]. The number follows the format of two letters, six digits and a final letter: for example, QQ 12 34 56 B. It acts as a unique identifier so that every contribution and tax record is attached to the correct individual. Workers who do not yet have a number can apply online, and the process typically takes up to four weeks [14]. The number appears on payslips, on the P60 at year-end, and on correspondence from HMRC [13].
National Insurance classes: who pays what
National Insurance is divided into classes, each covering a different category of contributor [7]. Understanding which class applies is the first step in any payroll or self-assessment calculation.
| Class | Who pays it | Builds State Pension entitlement |
|---|---|---|
| Class 1 (primary) | Employees, on earnings | Yes |
| Class 1 (secondary) | Employers, on employees' earnings | No |
| Class 1A | Employers only, on taxable benefits in kind | No |
| Class 1B | Employers only, on PAYE Settlement Agreement items | No |
| Class 2 | Self-employed (now voluntary for most) | Yes |
| Class 3 | Voluntary contributors filling record gaps | Yes |
| Class 4 | Self-employed, on profits above the annual threshold | No |
Class 1: employees and employers
Class 1 is the most significant class by revenue and the one processed through every employer's payroll [7]. It is split into a primary contribution (paid by the employee) and a secondary contribution (paid by the employer). Both are calculated on gross earnings in each pay period, using thresholds periodised to match weekly, monthly or annual payroll frequency [4].
Class 1A and Class 1B
Class 1A is paid by employers on taxable benefits in kind, such as company cars and private medical insurance, and on qualifying termination awards above £30,000 [12]. For the 2026-27 tax year, the Class 1A rate is 15% [12]. Class 1B applies to items covered under a PAYE Settlement Agreement, where the employer settles the tax and NI on certain minor or irregular benefits on behalf of employees [7].
Class 2 and Class 4: the self-employed
Self-employed individuals do not pay Class 1 NI. Mandatory Class 2 contributions were removed for most self-employed people from April 2024, though voluntary Class 2 payments remain available for those wishing to protect their State Pension record [10]. Class 4 contributions apply to self-employed profits above the Lower Profit Limit; the current rates are published on gov.uk [5]. Class 4 does not build entitlement to the State Pension or contributory benefits, unlike Classes 1, 2 and 3 [7].
NI thresholds and rates for the 2026-27 tax year
The amount of National Insurance due depends on where a worker's earnings fall in relation to a series of thresholds. All figures below apply to the 2026-27 tax year (6 April 2026 to 5 April 2027) [4].
Key thresholds for Class 1
The following thresholds govern when Class 1 NI becomes payable, expressed in weekly, monthly and annual equivalents [5]:
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Secondary Threshold (ST): employer NI starts | £96 | £417 | £5,000 |
| Lower Earnings Limit (LEL): qualifying year starts | £129 | £559 | £6,708 |
| Primary Threshold (PT): employee NI starts | £242 | £1,048 | £12,570 |
| Upper Earnings Limit (UEL): employee lower rate ends | £967 | £4,189 | £50,270 |
One commonly misunderstood feature of these thresholds is the gap between the Secondary Threshold (£5,000) and the Primary Threshold (£12,570). Employers pay NI on earnings in that £7,570 band even though employees do not, so the employer bears the full cost of secondary NI on wages between those two figures for each worker [4].
Employee NI rates for 2026-27
Employee Class 1 NI rates depend on which earnings band the pay falls into [3]:
| Earnings band (annual) | Employee NI rate |
|---|---|
| Below Primary Threshold (below £12,570) | 0% |
| Primary Threshold to Upper Earnings Limit (£12,570 to £50,270) | 8% |
| Above Upper Earnings Limit (above £50,270) | 2% |
Employer NI rates for 2026-27
Employers pay secondary Class 1 NI at a flat 15% on all earnings above the Secondary Threshold, with no upper limit on the rate [4]. Unlike the employee rate, the employer rate does not reduce above the Upper Earnings Limit. The rate rose from 13.8% to 15% on 6 April 2026, a 1.2 percentage-point increase that adds to the cost of every payroll above £5,000 per year. Most UK payroll software applies threshold periodisation automatically, using the weekly or monthly equivalent of each threshold rather than requiring the employer to convert manually.
The State Pension and qualifying years
National Insurance contributions build a worker's entitlement to the new State Pension and certain contributory benefits [6]. Not every year of employment automatically counts as a qualifying year. A year qualifies when earnings in that tax year are at or above the Lower Earnings Limit of £6,708 per year, which means the earnings are on record with HMRC at that level, regardless of whether contributions were actually due [3].
How many qualifying years are needed
A minimum of 10 qualifying years is required to receive any new State Pension at all [6]. To receive the full new State Pension, a worker generally needs 35 qualifying years. Workers who were contracted out of the Additional State Pension may need more than 35 years to reach the full rate, depending on how long they were contracted out. The gov.uk Check your National Insurance Record service lets any worker view their record and State Pension forecast at any time [9].
Gaps in the NI record
Gaps arise when earnings fall below the Lower Earnings Limit, when a worker is not in employment, or when a self-employed person has low profits. Workers with gaps can fill them voluntarily by paying Class 3 contributions, subject to eligibility rules and deadlines that vary by how far back the gap falls [10]. For payroll bureaux managing multiple client schemes, employees approaching retirement who query their NI record are a frequent year-end topic; surfacing the issue early in the annual cycle is generally simpler than resolving it after the tax year closes.
Employer NI reliefs
Not all employers pay the full 15% secondary rate on all earnings. Several reliefs reduce or eliminate the employer NI liability on certain categories of worker [4].
Employment Allowance
The Employment Allowance allows eligible employers to offset up to £10,500 per tax year against their Class 1 secondary NI liability [5]. The allowance was previously restricted to employers whose NI bill was below £100,000 in the prior tax year; that restriction was removed from 2025-26, making most UK employers with a PAYE bill eligible. The allowance is claimed through the Employer Payment Summary (EPS) and reduces the in-year NI liability. It is not paid as a cash rebate and cannot be offset against employee NI.
Zero-rate categories
Certain categories of worker attract a 0% employer NI rate up to an Upper Secondary Threshold, after which the standard 15% applies [5]. The table below sets out the main zero-rate categories for the 2026-27 tax year [4]:
| Category | NI category letter | 0% rate up to | Condition |
|---|---|---|---|
| Employees under 21 | M | £50,270/year | Age only |
| Apprentices under 25 | H | £50,270/year | Apprenticeship contract required |
| Armed Forces veterans | V | £50,270/year | First 12 months of civilian employment only |
| Freeport employees | F / I / S / L | £25,000/year | 60% of working time in designated Freeport site, 36-month cap |
| Investment Zone employees | D / E / K / N | £25,000/year | 60% of working time in Investment Zone, 36-month cap |
Each relief requires the correct NI category letter to be applied in the payroll software. An incorrect letter causes either an underpayment that HMRC will flag or an overpayment that must be corrected through EPS. HMRC-recognised payroll for SMEs carries the correct category logic built in. For a deeper look at how employer NI is calculated across these categories, the guide to understanding employer National Insurance covers the mechanics in full.
Directors and NI
Directors of limited companies are assessed on an annual earnings period for Class 1 NI purposes, regardless of how frequently they receive payment [15]. This means NI is calculated on the director's total earnings for the tax year, not on each payment in isolation. For director-shareholders taking a low salary combined with dividends, a single large salary payment late in the tax year can trigger an unexpected NI liability. Payroll platforms that support the HMRC-recognised payroll API apply the director annual earnings period calculation automatically to remove the risk of error.
NI for sole traders and the self-employed
A sole trader or partnership partner does not use PAYE for their own earnings. They report income through Self Assessment and pay Class 4 NI on profits above the Lower Profit Limit, with rates published on gov.uk each April [5]. Class 4 does not build State Pension entitlement; only Class 1, Class 2 and Class 3 count towards qualifying years [7]. Self-employed people with gaps in their record can consider voluntary Class 3 contributions to protect their pension [10]. For sole traders who also employ staff, the full PAYE and Class 1 secondary obligations apply to those employees under sole-trader payroll rules identical to those governing any other employer.
Conclusion
National Insurance sits at the intersection of employment, welfare and payroll compliance. For employers, it is a recurring cost on every pound of wages above £5,000 per year, shaped by reliefs that can materially reduce the bill for businesses that identify and apply them. For employees, contributions build a record that determines entitlement to the State Pension and key benefits, making the accuracy of that record a matter of long-term financial consequence.
The reforms in force from 6 April 2026 changed the employer rate significantly. Payroll software holding the HMRC Recognised badge applies the correct thresholds, category letters and periodisation rules automatically, leaving employers to focus on hiring decisions rather than rate tables. The interaction between the employer rate, the Employment Allowance, and the zero-rate categories for certain workers means the effective employer NI cost varies considerably across a single workforce.
Frequently asked questions
What is the difference between employee and employer National Insurance?
Employee National Insurance (Class 1 primary) is deducted directly from a worker's gross pay before they receive their salary, at 8% on earnings between £12,570 and £50,270 per year and 2% above that [3]. Employer National Insurance (Class 1 secondary) is a separate charge paid by the employer at 15% on all earnings above £5,000 per year; it does not appear on the employee's payslip and does not reduce their take-home pay directly [4]. The two contributions are calculated independently on the same earnings figure.
How many National Insurance qualifying years are needed for the full State Pension?
A worker generally needs 35 qualifying years on their National Insurance record to receive the full new State Pension, and a minimum of 10 qualifying years to receive any payment at all [6]. A qualifying year is one in which the worker's earnings were at or above the Lower Earnings Limit for that tax year. Workers can check how many qualifying years they have and see their State Pension forecast by using the gov.uk Check your National Insurance Record service [9].
Does employer National Insurance come out of an employee's salary?
Employer National Insurance is not deducted from the employee's salary and does not reduce their take-home pay [4]. It is an additional cost borne by the employer, payable on top of wages. For a worker earning £30,000 per year, the employer pays approximately £3,750 in secondary NI (15% on £25,000 above the £5,000 Secondary Threshold), meaning the true cost of employing that person is roughly £33,750 before pension contributions and other on-costs are added [4].
Can gaps in a National Insurance record be filled?
Workers with gaps in their NI record can pay voluntary Class 3 contributions to fill them, subject to eligibility rules and time limits that depend on how far back the gap falls [10]. Filling gaps is particularly relevant for workers with career breaks, extended periods of low earnings, or years of self-employment where profits were below the Lower Profit Limit. The gov.uk voluntary National Insurance contributions page sets out the current rates and the deadlines for filling specific tax years [10].
