National Insurance (NI)
Mandatory contributions that fund State benefits including the State Pension, charged at different rates for employees, employers, and self-employed.
Key Points
- ✓Employee rate: 8% (£12,570-£50,270), 2% above
- ✓Employer rate: 13.8% on earnings over £9,100
- ✓Self-employed: 6% Class 4 National Insurance (£12,570-£50,270), 2% above
- ✓Builds qualifying years for State Pension
- ✓Stops at State Pension Age
Detailed Explanation
National Insurance is a mandatory contribution that funds State benefits including the State Pension, NHS, and unemployment benefits. It's separate from Income Tax and has its own thresholds and rates.
For employees, Class 1 National Insurance is charged at 8% on earnings between £12,570 and £50,270 per year, then 2% on earnings above £50,270. Your employer also pays 13.8% on your earnings above £9,100.
Self-employed people pay Class 2 National Insurance (abolished from April 2024) and Class 4 National Insurance - 6% on profits between £12,570 and £50,270, and 2% above that.
Your National Insurance contributions build up qualifying years towards your State Pension. You need 35 qualifying years for the full new State Pension of £221.20 per week (2024/25).
National Insurance stops being payable when you reach State Pension Age, even if you continue working. This gives pensioners a significant boost to their take-home pay compared to younger workers on the same salary.
Practical Examples
- •On a £40,000 salary, employee National Insurance is 8% on £27,430 (earnings above threshold) = £2,194.40 per year
- •Your employer pays 13.8% on £30,900 (earnings above their threshold) = £4,264.20 - this doesn't come from your pay
- •A self-employed person with £50,000 profit pays 6% Class 4 National Insurance on £37,430 = £2,245.80
Frequently Asked Questions
Related Terms
Class 1 National Insurance
National Insurance contributions deducted from employed earnings, paid by both employee (8-12%) and employer (13.8%).
Class 2 National Insurance
Fixed-rate weekly NI contributions paid by self-employed people earning over £12,570 per year.
Class 4 National Insurance
Profit-based NI contributions paid by self-employed people (6% on profits £12,570-£50,270, 2% above).
State Pension
A regular payment from the government when you reach State Pension age (currently 66), based on your National Insurance record.
Lower Earnings Limit (LEL)
The minimum earnings level (£6,396 for 2024/25) at which you start building qualifying years for State Pension, though you don't pay NI.
National Insurance Number
A unique identifier (format: AB 12 34 56 C) used to track your National Insurance contributions and tax records.