Understanding National Insurance Contributions 2025/26
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Open Calculator →National Insurance for 2025/26 costs employees 8% on earnings between £12,571 and £50,270, then 2% on everything above £50,270. Someone earning £40,000 pays £2,194 in National Insurance: the first £12,570 is NI-free, then £27,430 × 8% = £2,194. Add income tax of £5,486, and total deductions reach £7,680 (19.2% of salary).
However, from April 2025, employers face increased National Insurance costs: 15% rate (up from 13.8%) on employee earnings above just £5,000 (down from £9,100). For businesses, employing someone on £40,000 now costs an additional £5,250 in employer NI - though companies with payroll under £100,000 can claim the £10,500 Employment Allowance to reduce this.
This guide explains all types of National Insurance for 2025/26, shows you exactly what you'll pay as an employee or self-employed person, and clarifies how NI contributions affect your state pension entitlement.
What National Insurance Funds
National Insurance isn't technically a tax, but it functions like one. Your NI contributions fund three main areas:
1. NHS (National Health Service) Free healthcare at the point of use for all UK residents. NI contributions partially fund NHS operations, though general taxation provides most NHS funding.
2. State Pension You need 35 qualifying years of NI contributions for the full new State Pension (currently £221.20/week or £11,502/year). Fewer years = proportionally reduced pension. At least 10 qualifying years required for any state pension.
Qualifying year: Earn above £12,570 (the Lower Earnings Limit) and pay NI, or receive NI credits (unemployment, caring responsibilities, parenting).
3. Contributory Benefits
- Jobseeker's Allowance (contribution-based)
- Employment and Support Allowance
- Maternity Allowance
- Bereavement benefits
Key difference from income tax: NI contributions build your state pension entitlement. Income tax doesn't. Missing NI years means lower state pension in retirement.
Calculate Your Total Tax and NI →
Employee National Insurance (Class 1) - 2025/26
If you're employed (PAYE), you pay Class 1 employee National Insurance. Your employer deducts it from your salary automatically.
Rates and Thresholds
Primary Threshold: £12,570 per year (£1,048/month, £242/week)
- Earnings below this: 0% NI
- This threshold matches personal allowance for income tax
Employee NI rates:
- 8% on earnings between £12,571 and £50,270 (£37,700 band)
- 2% on earnings above £50,270 (no upper limit)
Upper Earnings Limit: £50,270
- Above this, rate drops from 8% to 2%
- You continue paying 2% on all earnings above £50,270 forever (no cap)
How Much NI You'll Pay (Examples)
| Annual Salary | NI-Free (First £12,570) | NI at 8% | NI at 2% | Total NI |
|---|---|---|---|---|
| £20,000 | £12,570 | £7,430 × 8% = £594 | £0 | £594 |
| £25,000 | £12,570 | £12,430 × 8% = £994 | £0 | £994 |
| £30,000 | £12,570 | £17,430 × 8% = £1,394 | £0 | £1,394 |
| £40,000 | £12,570 | £27,430 × 8% = £2,194 | £0 | £2,194 |
| £50,270 | £12,570 | £37,700 × 8% = £3,016 | £0 | £3,016 |
| £60,000 | £12,570 | £37,700 × 8% = £3,016 | £9,730 × 2% = £195 | £3,211 |
| £75,000 | £12,570 | £37,700 × 8% = £3,016 | £24,730 × 2% = £495 | £3,511 |
| £100,000 | £12,570 | £37,700 × 8% = £3,016 | £49,730 × 2% = £995 | £4,011 |
Pattern: NI increases rapidly up to £50,270, then much slower above (only 2%).
Effective NI rates:
- £20,000: 3.0% effective rate
- £40,000: 5.5% effective rate
- £60,000: 5.4% effective rate
- £100,000: 4.0% effective rate
Higher earners pay a lower effective NI rate because of the 2% taper above £50,270.
See Your Complete Tax and NI Breakdown →
Employer National Insurance (Class 1) - Major Changes April 2025
Employers pay separate National Insurance on top of your salary. This doesn't come out of your pay - it's an additional employment cost to the business.
What's Changing in April 2025
Old rates (until April 2025):
- Rate: 13.8% on earnings above £9,100 per employee
New rates (from April 2025):
- Rate: 15% (increased from 13.8%)
- Threshold: £5,000 per employee (reduced from £9,100)
Impact on employers:
- Higher rate (13.8% → 15% = 1.2pp increase)
- Lower threshold (£9,100 → £5,000 = £4,100 reduction)
- Both changes significantly increase employer costs
How Much Employers Pay (from April 2025)
| Employee Salary | Employer NI at 15% | Total Employment Cost |
|---|---|---|
| £20,000 | £15,000 × 15% = £2,250 | £22,250 |
| £30,000 | £25,000 × 15% = £3,750 | £33,750 |
| £40,000 | £35,000 × 15% = £5,250 | £45,250 |
| £50,000 | £45,000 × 15% = £6,750 | £56,750 |
| £75,000 | £70,000 × 15% = £10,500 | £85,500 |
Example: Hiring someone at £40,000 costs the employer £45,250 once you include £5,250 employer NI.
Employment Allowance (£10,500 from April 2025)
Small employers can claim Employment Allowance to reduce their total employer NI bill:
Previous allowance: £5,000 per year New allowance (April 2025): £10,500 per year
How it works:
- Deduct £10,500 from your total annual employer NI bill
- Only businesses/charities with NI bills under £100,000 qualify
- One allowance per employer (not per employee)
Example:
- 3 employees at £30,000 each
- Total employer NI: 3 × £3,750 = £11,250
- Less Employment Allowance: -£10,500
- Actual NI paid: £750 (instead of £11,250)
Note: Many small businesses now pay minimal employer NI thanks to the doubled allowance (£5,000 → £10,500).
Self-Employed National Insurance (Class 2 & Class 4)
Self-employed people pay two types of National Insurance: Class 2 (flat weekly amount) and Class 4 (percentage of profits).
Class 2 National Insurance
Rate: £3.50 per week (£182/year)
When you pay:
- Voluntary if profits under £12,570
- Automatic if profits £12,570 or more (collected via Self Assessment)
Why pay voluntary Class 2?
- Builds state pension entitlement
- Costs £182/year
- Each year counts toward your 35 qualifying years for full state pension
- Worth it if you're not earning enough for automatic NI credits
How to pay: Through Self Assessment tax return (collected alongside tax and Class 4 NI).
Class 4 National Insurance
Profit thresholds and rates (2025/26):
- Profits £0 - £12,570: 0% NI
- Profits £12,571 - £50,270: 6% NI
- Profits £50,271+: 2% NI
Examples at different profit levels:
| Annual Profit | Class 2 (£182) | Class 4 Calculation | Total NI |
|---|---|---|---|
| £10,000 | £0 (voluntary) | £0 | £0 (can pay £182 voluntary) |
| £20,000 | £182 | (£20,000 - £12,570) × 6% = £446 | £628 |
| £30,000 | £182 | (£30,000 - £12,570) × 6% = £1,046 | £1,228 |
| £40,000 | £182 | (£40,000 - £12,570) × 6% = £1,646 | £1,828 |
| £50,270 | £182 | (£50,270 - £12,570) × 6% = £2,262 | £2,444 |
| £60,000 | £182 | £37,700 × 6% + £9,730 × 2% = £2,457 | £2,639 |
| £75,000 | £182 | £37,700 × 6% + £24,730 × 2% = £2,757 | £2,939 |
Comparison to employed NI: At £40,000, self-employed pay £1,828 total NI vs employed £2,194 (£366 less). However, self-employed don't get sick pay, holiday pay, or employer pension contributions.
Calculate Self-Employed Tax and NI →
National Insurance vs Income Tax: Key Differences
| Feature | National Insurance | Income Tax |
|---|---|---|
| Personal allowance | £12,570 (same) | £12,570 (same) |
| Employee rate | 8% then 2% | 20% then 40% then 45% |
| Self-employed rate | 6% then 2% | 20% then 40% then 45% |
| Upper earnings limit | £50,270 (then 2%) | No limit (45% continues) |
| Builds pension? | ✅ Yes | ❌ No |
| Same across UK? | ✅ Yes | ❌ No (Scotland different) |
| Employer pays too? | ✅ Yes (15%) | ❌ No |
| Funds | NHS, state pension, benefits | General government spending |
Combined effective rates at £40,000:
- Income tax: £5,486 (13.7%)
- National Insurance: £2,194 (5.5%)
- Total: £7,680 (19.2%)
At £60,000:
- Income tax: £11,432 (19.1%)
- National Insurance: £3,211 (5.4%)
- Total: £14,643 (24.4%)
At £100,000:
- Income tax: £27,432 (27.4%)
- National Insurance: £4,011 (4.0%)
- Total: £31,443 (31.4%)
Key insight: As income rises, income tax increases dramatically (20% → 40% → 45%), but NI barely increases (8% → 2%). At high incomes, NI becomes a small percentage of total tax burden.
How National Insurance Affects Your State Pension
You need 35 qualifying years of NI contributions to get the full new State Pension.
Full new State Pension (2025/26): £221.20/week (£11,502/year)
How many years you need:
- 35 years: 100% pension (£221.20/week)
- 30 years: 86% pension (£190.32/week)
- 25 years: 71% pension (£157.29/week)
- 20 years: 57% pension (£126.11/week)
- 10 years: 29% pension (£63.06/week) - minimum for any pension
- Under 10 years: £0 pension
What counts as a qualifying year:
✅ Earning over £12,570 as employee or self-employed (Class 1 or 4 NI) ✅ Paying Class 2 NI (£3.50/week if self-employed under £12,570 profits) ✅ Receiving NI credits - automatically given if:
- Claiming Universal Credit or Jobseeker's Allowance
- Claiming Child Benefit for child under 12
- Caring for someone 20+ hours/week (Carer's Credit)
- Long-term sick (Employment and Support Allowance)
Gaps in your record:
You can check your NI record online via GOV.UK. If you have gaps, you can make voluntary Class 3 contributions (£17.45/week or £907/year) to fill them - but only worth it if close to retirement and missing qualifying years.
Example: You have 30 qualifying years, need 35 for full pension. Paying voluntary NI for 5 years costs £4,535 (5 × £907) but increases your pension from £190.32/week to £221.20/week (£30.88/week or £1,606/year extra). Pays for itself in under 3 years of retirement!
Check Your National Insurance Record
Frequently Asked Questions
What is National Insurance?
National Insurance is a contribution system that funds the NHS, state pension, and contributory benefits like Jobseeker's Allowance. Employees pay 8% on earnings between £12,571-£50,270, then 2% above £50,270. Self-employed pay Class 2 (£3.50/week) and Class 4 (6% then 2% on profits). Employers also pay 15% on earnings above £5,000 per employee from April 2025.
How much National Insurance do I pay?
On £40,000 salary, you pay £2,194 NI (8% on the £27,430 above £12,570 threshold). On £60,000, you pay £3,211 (8% on first £37,700 above threshold + 2% on remaining £9,730). Self-employed at £40,000 profit pay £1,828 (Class 2 £182 + Class 4 £1,646). Use our calculator for your exact amount.
When do I start paying National Insurance?
When your annual earnings exceed £12,570 (£1,048/month or £242/week). Below this, you pay 0% NI. You pay 8% on earnings between £12,571 and £50,270, and 2% on all earnings above £50,270. Same threshold as income tax personal allowance.
What is the difference between Class 1 and Class 4 NI?
Class 1 is for employees (deducted via PAYE): 8% on £12,571-£50,270, then 2% above. Class 4 is for self-employed (paid via Self Assessment): 6% on £12,571-£50,270, then 2% above. Self-employed pay slightly less (6% vs 8%) but get no sick pay, holiday pay, or employer pension contributions.
Do I pay NI if I'm self-employed?
Yes, two types: Class 2 (£3.50/week or £182/year if profits over £12,570) and Class 4 (6% on profits between £12,571-£50,270, then 2% above). Total NI at £40,000 profit: £1,828 vs £2,194 for employees. You pay through Self Assessment alongside income tax.
How does National Insurance affect my pension?
You need 35 qualifying years of NI contributions for full new State Pension (£221.20/week or £11,502/year). Each year with earnings over £12,570 counts as one qualifying year. Missing years means proportionally lower pension. Minimum 10 years required for any state pension. Check your record on GOV.UK.
Can I get National Insurance back?
No, NI is not refundable. However, it's not wasted - it builds your state pension entitlement (need 35 years for full pension) and qualifies you for contributory benefits. Unlike income tax, NI contributions have direct personal benefits through state pension.
What is the upper earnings limit?
£50,270 for 2025/26. Above this threshold, your NI rate drops from 8% to 2% (employees) or 6% to 2% (self-employed). There is no upper cap - you continue paying 2% NI on all earnings above £50,270, even at £200,000 or £1 million. Unlike income tax, NI rate decreases at high earnings.
Why is National Insurance separate from tax?
Historical reasons, though it functions similarly. NI was originally an insurance scheme (hence the name), providing direct benefits (state pension, unemployment support) to contributors. Income tax funds general government spending. Keeping them separate maintains the link between contributions and entitlements, especially for state pension.
How do I check my NI record?
Log into your Government Gateway account at https://www.gov.uk/check-national-insurance-record. You'll see your NI contributions history, qualifying years, and state pension forecast. Free to check anytime. Fill gaps by paying voluntary Class 3 contributions (£17.45/week) if you're missing years.
Related Resources
- UK Tax Calculator - Calculate your combined income tax and NI
- Income Tax Guide 2025/26 - Understand how income tax works
- UK Tax Bands 2025/26 - All tax rates explained
- Take-Home Pay Calculator - See your net pay after all deductions
Official Sources:
- HMRC: National Insurance Rates and Thresholds 2025-26
- GOV.UK: National Insurance: Introduction
- GOV.UK: Check Your National Insurance Record
- GOV.UK: State Pension Forecast
Last updated: 9 January 2025 Disclaimer: NI rates for 2025/26: Employees 8% (£12,571-£50,270) then 2%, self-employed Class 2 £3.50/week + Class 4 6% then 2%, employer 15% above £5,000 from April 2025. Employment Allowance £10,500. State pension requires 35 qualifying years for full amount. Thresholds may change. Always verify with HMRC. UK Calculator is not a tax or pensions adviser.
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