National Insurance (NI) is one of the most misunderstood parts of the UK tax system. While everyone knows they pay it, few people understand exactly what it funds, how it differs from Income Tax, or how it affects their future benefits. This comprehensive guide explains everything you need to know about National Insurance in 2025/26.
What Is National Insurance?
National Insurance is a system of contributions that funds specific state benefits including:
- State Pension - Your retirement income from the government
- NHS funding - Healthcare services
- Unemployment benefits - Jobseeker's Allowance and Employment Support Allowance
- Maternity/Paternity benefits - Statutory pay for new parents
- Bereavement benefits - Support for surviving family members
Unlike Income Tax which goes into general government revenue to fund everything from schools to defense, NI has a specific purpose tied to your individual entitlements.
The key principle: The more NI you pay (technically, the more qualifying years you build), the more benefits you're entitled to - particularly the State Pension.
National Insurance Rates 2025/26
Employees (Class 1 NI)
If you're employed, your employer deducts NI from your salary through PAYE alongside Income Tax:
| Annual Earnings | Weekly Earnings | NI Rate |
|---|---|---|
| £0 - £12,570 | £0 - £242 | 0% |
| £12,571 - £50,270 | £242 - £967 | 8% |
| Over £50,270 | Over £967 | 2% |
Important: NI is calculated on a weekly or monthly basis, not annually like Income Tax. This matters for people with variable income.
Example calculation for £35,000 salary: - Earnings £0-£12,570: £0 NI - Earnings £12,571-£35,000 (£22,430): £22,430 × 8% = £1,794 annual NI - Monthly NI deduction: £149.50
Use our Take Home Pay Calculator to see your exact NI contributions alongside tax deductions.
Self-Employed (Class 2 & Class 4 NI)
Self-employed individuals pay two types of NI:
Class 2 NI: Flat weekly rate if profits over £12,570/year
- Rate: £3.45 per week (£179.40 per year)
- Purpose: Qualifies you for State Pension and certain benefits
- Collection: Through Self Assessment
Class 4 NI: Percentage of profits
- 6% on profits between £12,570 - £50,270
- 2% on profits over £50,270
- Purpose: Additional contribution, doesn't add to benefit entitlement
- Collection: Through Self Assessment
Example for £45,000 self-employed profit: - Class 2: £179.40 - Class 4: (£45,000 - £12,570) × 6% = £1,946 - Total annual NI: £2,125
Read our Self-Employment Guide for detailed advice on NI planning for sole traders and contractors.
Employers (Class 1 Secondary NI)
Your employer also pays NI on your behalf - 13.8% on all earnings above £9,100 (the Secondary Threshold). This is a business cost that employees don't see on their payslip.
Example: If you earn £35,000: - Employer pays: (£35,000 - £9,100) × 13.8% = £3,574 employer NI - Your true cost to employ is £35,000 + £3,574 = £38,574
Use our Employer Cost Calculator to see the total cost of employment including employer NI.
National Insurance Classes Explained
Class 1 - Employees Paid by employees earning over £242/week (£12,570/year). Deducted automatically from your salary through PAYE.
Qualifies you for:
- State Pension
- Jobseeker's Allowance
- Employment & Support Allowance
- Maternity/Paternity Allowance
- Bereavement benefits
Class 2 - Self-Employed Flat weekly rate for self-employed people with profits over £12,570.
Qualifies you for:
- State Pension
- Maternity Allowance
- Bereavement benefits
Does NOT qualify for:
- Jobseeker's Allowance
- Statutory Sick Pay
Class 3 - Voluntary Contributions Pay voluntarily if you have gaps in your NI record and want to protect your State Pension entitlement.
- Rate: £17.45 per week (£907.40 per year) for 2025/26
- Why pay: To fill gaps and reach 35 qualifying years for full State Pension
- When to consider: If you've lived abroad, taken career breaks, or had low earnings
Check if you need Class 3: Check your National Insurance record online to see if you have gaps.
Class 4 - Self-Employed Profit-Related Additional self-employed contributions based on profits. Doesn't add to benefit entitlement - essentially additional tax.
How National Insurance Differs from Income Tax
Many people confuse NI with Income Tax, but they're fundamentally different:
| Feature | National Insurance | Income Tax |
|---|---|---|
| What it funds | Specific benefits (pensions, healthcare) | General government spending |
| Calculation | Weekly/monthly basis | Annual basis |
| Age limit | Stops at State Pension age | No age limit |
| Applied to | Earned income only | All income (wages, pensions, investments) |
| Personal Allowance | £12,570 (2025/26) | £12,570 (same) |
| Top rate | 2% (above £50,270) | 45% (above £125,140) |
| Builds entitlement | Yes (State Pension) | No |
Key difference for retirement planning: You stop paying NI when you reach State Pension age (currently 66, rising to 67), but you continue paying Income Tax. This means take-home pay increases when you reach State Pension age if you keep working.
Learn more about how Income Tax works and how it interacts with NI.
How National Insurance Affects Your State Pension
The new State Pension (for people reaching State Pension age after 6 April 2016) requires:
- 10 qualifying years minimum - To get any State Pension
- 35 qualifying years - For the full State Pension (£221.20/week in 2025/26)
What counts as a qualifying year?
- Paid NI contributions from employment/self-employment
- NI credits while receiving certain benefits (Jobseeker's Allowance, Universal Credit, Child Benefit)
- Voluntary Class 3 NI contributions
Example: If you have 30 qualifying years, you get 30/35ths of the full pension = £189.60/week instead of £221.20/week. That's a £31.60/week (£1,643/year) reduction for life.
Check your record: Use the government's online checker to see:
- How many qualifying years you have
- Your State Pension forecast
- Gaps in your record that you can fill
Read our Pensions Guide for comprehensive State Pension planning advice.
National Insurance for Different Employment Situations
Multiple Jobs
If you have two jobs, you pay NI separately on each:
Job 1: £30,000/year
- £0 on first £12,570
- 8% on £17,430 = £1,394 NI
Job 2: £15,000/year
- £0 on first £12,570
- 8% on £2,430 = £194 NI
Total NI: £1,588
The catch: You get the £12,570 threshold in EACH job, which might mean you pay less NI than if it was one £45,000 job.
But beware: If your combined income in any one job exceeds £50,270, the 2% rate applies to the excess.
Directors and Company Owners
Company directors can choose how to pay NI:
Annual method: NI calculated across the full tax year (pro-rata if mid-year appointment) Standard method: Calculated period by period like normal employees
Tax planning opportunity: Directors can manipulate the timing of salary/dividends to optimize NI. Consult an accountant for IR35-compliant structures.
Contractors and IR35
Inside IR35: Pay employee NI (8%/2%) on your "deemed employment income" Outside IR35: Pay self-employed NI (Class 2 + Class 4) on company profits
IR35 status significantly affects your NI bill. Read our IR35 and Contractor Tax Guide for detailed rules.
Early Years Workers and the Lower Earnings Limit
If you earn between £6,396-£12,570 (the Lower Earnings Limit to Primary Threshold):
- You don't pay any NI (0% rate)
- But you still get a qualifying year for State Pension purposes
This is crucial for part-time workers and low earners - you're building pension entitlement even though you're not paying NI.
Warning: If you earn under £6,396/year, you don't get a qualifying year for State Pension.
Salary Sacrifice and NI Savings
Salary sacrifice schemes let you exchange salary for benefits (like pension contributions) before NI is calculated.
Example: £40,000 salary, sacrificing £5,000 for pension:
Without sacrifice:
- Salary: £40,000
- NI: 8% on £27,430 = £2,194
- Pension contribution (from net pay): £5,000 (but only costs you £4,000 after tax relief)
With sacrifice: - Salary: £35,000 - NI: 8% on £22,430 = £1,794 - Pension contribution: £5,000 (from gross) - NI saved: £400/year
Salary sacrifice saves both employee NI and employer NI. Many employers pass on their 13.8% saving as extra pension contributions.
Calculate your savings with our Salary Sacrifice Calculator.
National Insurance When You Stop Working
Reaching State Pension Age
Once you reach State Pension age (currently 66, rising to 67):
- You stop paying NI even if you keep working
- Your take-home pay increases (no more 8%/2% deduction)
- You still pay Income Tax as normal
Example: £40,000 salary at age 67: - Before State Pension age: Paid £1,794 NI - After State Pension age: Pay £0 NI - Extra take-home: £149.50/month
Taking a Career Break
If you stop working for an extended period:
- You won't pay NI
- You might not get qualifying years
- Your State Pension forecast reduces
Protection: You can get NI credits if you're:
- Claiming Jobseeker's Allowance or Universal Credit
- Claiming Child Benefit for a child under 12
- Caring for someone 20+ hours/week (Carer's Allowance)
- Receiving certain disability benefits
Without protection: Consider paying voluntary Class 3 NI to fill gaps.
Living or Working Abroad
If you work abroad, you might not pay UK NI:
- EEA/Switzerland: Covered by social security agreements (may pay in that country instead)
- Outside EEA: Might not pay NI at all
Protecting your State Pension: You can pay voluntary NI from abroad if you're a UK national. Rates and rules vary by country.
Common National Insurance Mistakes
Mistake 1: Not Checking Your NI Record
Millions of people have gaps they don't know about. Check your NI record annually to identify problems while there's time to fix them.
How to check: gov.uk/check-national-insurance-record
Mistake 2: Assuming Full State Pension is Guaranteed
You need 35 qualifying years. If you've had career breaks, part-time work, or time abroad, you likely have gaps.
Mistake 3: Not Claiming NI Credits
If you're caring for a child under 12, you should claim Child Benefit even if you don't need the money (you can elect not to be paid). This gives you NI credits protecting your State Pension.
Similarly, register as a carer if you care for someone 20+ hours/week.
Mistake 4: Thinking NI is Just Another Tax
NI directly affects your State Pension entitlement. Paying more NI (through employment) gives you more benefits than paying more Income Tax.
Mistake 5: Not Considering Voluntary Contributions
If you have gaps and are close to retirement, paying voluntary Class 3 NI can be one of the best financial returns available - potentially £1,000+ per year extra State Pension for a £907 contribution.
National Insurance and Universal Credit
Universal Credit (UC) has changed how NI credits work:
If you're on UC and looking for work:
- You get NI credits automatically
- Protects your State Pension entitlement
- No need to apply separately
Important: The credits only apply if you're meeting your "work search requirements" as agreed with your work coach.
If you're on UC but working reduced hours (under £12,570/year):
- Your employer pays Class 1 NI if you earn £242+/week
- UC tops up your income
- You still build qualifying years
Learn more in our Benefits Guide.
## Related Calculators and Resources
- Take Home Pay Calculator - See exact NI deductions from your salary
- Self Assessment Calculator - Calculate Class 2 and Class 4 NI
- Salary Sacrifice Calculator - See how much NI you can save
- National Insurance Guide - Comprehensive NI topic hub
- Pensions Guide - Understand State Pension planning
- Self-Employment Guide - NI for sole traders and contractors
- UK Tax Guide - Complete guide to UK taxation
Summary
National Insurance is more than just a tax - it's your contribution to the UK's social safety net and builds your entitlement to State Pension and other benefits. For employees in 2025/26, you pay 8% on earnings between £12,571-£50,270 and 2% above that. Self-employed pay Class 2 (£3.45/week) plus Class 4 (6%/2% on profits).
You need 35 qualifying years for the full State Pension of £221.20/week. Check your NI record annually to identify and fill gaps. Consider paying voluntary contributions if you're close to State Pension age with gaps in your record - it's one of the best financial returns available.
NI stops at State Pension age, meaning your take-home pay increases significantly if you continue working in your late 60s and beyond. Use our calculators to model your exact NI costs and optimize your contributions for maximum State Pension entitlement.