National Insurance Explained: Classes, Rates and Thresholds
National Insurance is the second-largest deduction from most people's pay. It also builds entitlement to the State Pension and other benefits. Here's how it works.
What is National Insurance?
National Insurance Contributions (NICs) are payments made by employees, employers, and the self-employed. They were originally set up to fund specific benefits (the NHS, State Pension, and Jobseeker's Allowance), though today they go into the general Treasury pot rather than separate ring-fenced funds.
For most employees, NI is collected automatically through PAYE alongside income tax. The key difference is that NI is calculated on earnings per pay period (weekly or monthly) rather than cumulatively over the year, which can lead to different outcomes for people with irregular income.
NI versus income tax
Income tax funds general government spending. NI specifically builds entitlement to contributory benefits including the State Pension, new-style Jobseeker's Allowance, and Statutory Maternity/Paternity Pay. Paying NI is what earns you qualifying years toward the State Pension.
The different classes of National Insurance
NI is divided into classes depending on how and what you earn. The class determines both the rate you pay and what benefits you build entitlement to.
| Class | Who pays it | Builds State Pension? |
|---|---|---|
| Class 1 (employee) | Employees earning above the Primary Threshold | Yes |
| Class 1 (employer) | Employers on employee wages above Secondary Threshold | No (employer contribution) |
| Class 2 | Self-employed with profits above Small Profits Threshold | Yes |
| Class 3 | Voluntary contributions to fill gaps in your record | Yes |
| Class 4 | Self-employed with profits above the Lower Profits Limit | No (additional earnings levy) |
Employee Class 1 NI rates (2026/27)
As an employee, you pay Class 1 NI on your earnings. The amount depends on how much you earn relative to two thresholds:
| Earnings band (annual) | Employee NI rate |
|---|---|
| Up to £12,570 (Primary Threshold) | 0% |
| £12,570 to £50,270 (Upper Earnings Limit) | 8% |
| Above £50,270 | 2% |
On a £40,000 salary, employee NI is: (£40,000 − £12,570) × 8% = £2,194 per year (£182.83/month). There is no NI on the first £12,570.
Employer NI (what your employer pays)
Your employer also pays National Insurance on your salary. This is separate from what you pay and does not show on your payslip, but it is a significant cost of employment.
| Earnings band (annual) | Employer NI rate |
|---|---|
| Up to £5,000 (Secondary Threshold) | 0% |
| Above £5,000 | 15% |
The Secondary Threshold was cut from £9,100 to £5,000 in April 2025, significantly raising employer NI costs. On a £30,000 salary, employer NI increased from around £2,884 to £3,750 per year as a result.
Each employer can offset the first £10,500 of their annual NI bill using the Employment Allowance (raised from £5,000 in April 2025). This means small employers with a handful of staff may pay little or no employer NI.
NI for the self-employed
If you are self-employed, you pay Class 2 and Class 4 NI rather than Class 1. Class 2 builds State Pension entitlement; Class 4 is an additional earnings levy with no benefit entitlement attached.
| Class | Threshold | Rate |
|---|---|---|
| Class 2 | Profits above £12,570 | £3.45/week (flat rate) |
| Class 4 | Profits £12,570–£50,270 | 6% |
| Class 4 | Profits above £50,270 | 2% |
NI for the self-employed was simplified in April 2024 when Class 2 was integrated into the Self Assessment return. You no longer need to pay Class 2 separately; it is calculated automatically as part of your tax return.
NI credits: building your record without paying
You can earn qualifying years for the State Pension even if you are not working or paying NI, through NI credits. These are awarded automatically in many circumstances:
- Claiming Child Benefit for a child under 12 (a parent who stays home to care for children should always claim Child Benefit to protect their State Pension, even if the HICBC claws it back)
- Receiving Jobseeker's Allowance or Employment Support Allowance
- Caring for someone for at least 20 hours/week and claiming Carer's Allowance
- Being a foster carer or kinship carer in some circumstances
Parents: always claim Child Benefit
Even if you or your partner earns over £60,000 and the High Income Child Benefit Charge applies, you should still register for Child Benefit to receive NI credits. You can elect to receive zero payment and avoid the charge, while still protecting your State Pension record.
How NI builds your State Pension
Each tax year in which you pay (or are credited with) NI contributions counts as a qualifying year. You need 35 qualifying years for the full new State Pension (£11,502.40/year in 2026/27). You need at least 10 qualifying years to receive any State Pension.
If you have gaps in your NI record (perhaps from time abroad, career breaks, or low earnings), you can pay voluntary Class 3 contributions to fill them. In 2026/27 this costs £17.45 per week (£907.40 per year). Given the State Pension is worth over £11,500 per year, filling a gap pays for itself very quickly.
You can check your State Pension forecast and full NI record at gov.uk/check-state-pension.
When you stop paying NI
Employees stop paying Class 1 NI when they reach State Pension age (currently 66). You continue to pay income tax but no longer pay employee NI contributions, which gives a useful increase in take-home pay.
Employers, however, continue to pay their Class 1 contributions on your earnings regardless of your age. If you are self-employed, you also stop paying Class 2 and Class 4 NI when you reach State Pension age.
Common National Insurance questions
How can I fill gaps in my NI record?
You can pay voluntary Class 3 NI contributions to fill gaps in your record. In 2026/27 the Class 3 rate is £17.45 per week (£907 per year). Given the full new State Pension is £11,973 per year, each qualifying year you buy adds roughly £342 per year for life — most people recoup the cost within 3 years of drawing the State Pension, making it an excellent investment for those with gaps. Check your record at gov.uk/check-state-pension and contact HMRC or the Future Pension Centre before paying.
Do I still pay NI after State Pension age?
No. Once you reach State Pension age (currently 66), you stop paying employee Class 1 NI contributions, even if you continue working. Your employer still pays employer Class 1 NI on your earnings above the secondary threshold. Self-employed workers also stop paying Class 4 NI from the start of the tax year after reaching State Pension age.
Why do income tax and NI have different thresholds?
The personal allowance (£12,570) and the NI primary threshold (also £12,570 since 2022) are now aligned at the lower end, meaning you start paying both at the same income level. However they diverge at the top: income tax moves to 40% at £50,270, while employee NI drops to 2% at the same threshold (not zero). The upper earnings limit and higher rate threshold have been aligned since 2009, but the rates above them differ because they are separate taxes with separate legislative histories.
Does salary sacrifice reduce my NI?
Yes — this is one of salary sacrifice's main advantages over regular pension contributions. Because salary sacrifice reduces your contractual gross pay before NI is calculated, you pay less employee NI. A basic-rate taxpayer sacrificing £200/month saves £16/month (8% of £200) in NI on top of their income tax saving, adding £192 per year to the pension pot's effective value. Your employer also saves 15% employer NI on the sacrificed amount.