National Insurance (NI) is a system of contributions paid by workers and employers in the UK to fund specific state benefits. These include the State Pension, statutory sick pay, maternity pay, and other social security benefits. Unlike income tax, which is used for general government spending, NI specifically supports the welfare and social protection structure. NI is governed by the Social Security Contributions and Benefits Act 1992, and is administered by HM Revenue & Customs (HMRC).
National Insurance contributions (NICs) are mandatory for most working people aged 16 and over, up to the State Pension age, who earn above a certain threshold. The amount you pay depends on your employment status and level of income. From April 2025, mandatory Class 2 NICs for most self-employed individuals are being abolished, although voluntary contributions remain available to protect State Pension entitlement.
1. Why is National Insurance Important?
For individuals, National Insurance determines eligibility for key state benefits, most notably the State Pension. Gaps in your NI record can reduce the value of your future pension or prevent you qualifying altogether. You can check your NI record online via GOV.UK and, where needed, pay voluntary Class 3 contributions to fill missing years.
For employers, NI represents a significant part of total employment costs. Employers must deduct Class 1 NICs from employees’ salaries via PAYE, pay their own employer NICs, and handle Class 1A or 1B NICs on taxable benefits or through PAYE Settlement Agreements. Accurate reporting via Real Time Information (RTI) is required every time an employee is paid. Employers may also be eligible to claim up to £5,000 in Employment Allowance relief per year, provided their total employer NICs were under £100,000 in the previous tax year.
Compliance with NI obligations is essential to avoid HMRC penalties, ensure employees’ benefit rights are protected, and take advantage of legitimate reliefs and allowances.
2. What This Guide Covers
This guide provides a comprehensive overview of National Insurance in the UK for the 2025/26 tax year. It is aimed at both individuals and employers, covering the following topics:
- Who pays National Insurance and when
- The different NI classes and their applications
- Current 2025/26 rates and thresholds
- How contributions are calculated and paid
- Your entitlements under the National Insurance system
- Employer compliance, payroll, and reporting duties
- Planning tips for individuals and businesses
- Recent and upcoming changes, including rate reforms and policy direction
Whether you’re employed, self-employed, approaching retirement, or running a business, understanding your National Insurance obligations is crucial to managing compliance, maximising benefit entitlement, and avoiding costly errors.
Section A: Understanding National Insurance Classes
National Insurance contributions (NICs) are categorised into different classes depending on your employment status and income level. These classes determine how much you pay, how you pay it, and what benefits you’re entitled to as a result. Whether you’re an employee, employer, or self-employed individual, understanding the class structure of National Insurance is key to ensuring compliance and maximising your entitlement to contributory state benefits.
This section explains the main NIC classes applicable in the 2025/26 tax year, how they are calculated, and the responsibilities of individuals and employers under each class.
1. Class 1 – Employees
Employees pay Class 1 NICs on their earnings through the Pay As You Earn (PAYE) system, which are deducted directly from their wages by their employer. Employers also pay a separate contribution on behalf of their employees.
- Employee Contributions: Payable on earnings above the Primary Threshold (currently £12,570 per year).
- Employer Contributions: Payable on earnings above the Secondary Threshold.
- Benefits in Kind: Certain non-cash benefits, such as company cars or health insurance, may incur Class 1A NICs payable by the employer.
Class 1 NICs help build entitlement to contributory benefits like the State Pension, Statutory Sick Pay (SSP), and Jobseeker’s Allowance (JSA).
2. Class 1A and 1B – Employers Only
These classes apply solely to employers in relation to taxable benefits and settlement arrangements:
- Class 1A: Paid annually on most benefits in kind reported through P11D forms (e.g. company cars, private health insurance).
- Class 1B: Payable when an employer enters into a PAYE Settlement Agreement (PSA) to cover tax and NICs on minor, irregular, or impracticable expenses.
These contributions are not deducted from the employee’s pay but are paid separately by the employer to HMRC.
3. Class 2 – Self-Employed
Until April 2025, self-employed individuals with profits above the Small Profits Threshold (SPT) paid a flat-rate Class 2 NIC. However, from the 2025/26 tax year, the government has abolished the obligation to pay Class 2 NICs for most self-employed individuals.
- Flat Weekly Rate: Previously around £3.45 per week; now voluntary for those below the threshold.
- Voluntary Payments: Still available to those with low profits or no income, to maintain State Pension entitlement.
- Payment Method: Paid annually via Self Assessment.
Class 2 NICs count towards certain contributory benefits, including the State Pension and Maternity Allowance.
4. Class 4 – Self-Employed
Class 4 NICs are payable by self-employed individuals on profits above the Lower Profits Limit (LPL). Unlike Class 2, Class 4 NICs do not count towards benefit entitlement but are still a legal requirement.
- Thresholds: Contributions apply on profits above approximately £12,570 (subject to annual updates).
- Rates: 9% on profits up to the Upper Profits Limit (around £50,270), and 2% on profits above that.
- Declaration: Paid via Self Assessment along with income tax.
Class 4 NICs are purely fiscal and do not confer entitlement to benefits, making the continued use of Class 2 (voluntary) important for many self-employed people.
Understanding which National Insurance class applies to your situation is essential for avoiding underpayments or compliance issues. Employees and employers typically deal with Class 1 and 1A/1B contributions, while self-employed individuals must assess their obligations under Class 2 (voluntary) and Class 4. Knowing how to report and manage these classes ensures both legal compliance and access to key social security benefits.
Section B: NI Rates and Thresholds 2025/26
National Insurance rates and thresholds determine how much individuals and employers pay during the tax year. These thresholds are updated annually and vary depending on employment status and NIC class. For 2025/26, headline employee rates were reduced while most thresholds remain frozen, which has increased the real tax burden for many due to fiscal drag.
1. Current NI Rates (2025/26)
The following rates apply for the 2025/26 tax year, subject to confirmation in the Autumn Statement:
| NI Class | Who Pays | Rate (2025/26) | Notes |
|---|---|---|---|
| Class 1 | Employees | 8% (standard); 2% above Upper Earnings Limit | Deducted via PAYE |
| Class 1 | Employers | 15% | On earnings above the Secondary Threshold |
| Class 1A / 1B | Employers | 15% | On most taxable benefits and PSA items |
| Class 2 | Self-employed | Voluntary only | Flat rate (~£3.45/week) for benefit protection |
| Class 4 | Self-employed | 9% to Upper Profits Limit, 2% thereafter | Based on taxable profits via Self Assessment |
2. Thresholds and Limits
The key earnings thresholds for 2025/26 are as follows (subject to confirmation):
- Lower Earnings Limit (LEL): £6,396 – needed to earn a qualifying year for benefits
- Primary Threshold (employees): £12,570 – earnings above this are subject to employee NICs
- Secondary Threshold (employers): £9,100 – employer NICs due above this level
- Upper Earnings Limit (employees): £50,270 – above this, employees pay only 2%
- Upper Profits Limit (self-employed): £50,270 – Class 4 drops to 2% above this
- Small Profits Threshold (Class 2): £6,725 – below this, Class 2 is optional
The freezing of thresholds has increased the number of workers caught in NICs despite low real wage growth. Employers must remain aware of both employee and employer obligations at each threshold to ensure full compliance and accurate payroll reporting.
Understanding the NIC rates and thresholds for each tax year allows individuals to plan contributions and forecast benefits accurately. Employers and payroll teams must adjust systems annually to reflect the latest bands and rates, avoiding underpayments and HMRC penalties.
Section C: How National Insurance Is Collected
National Insurance contributions are collected differently depending on your employment status. Employees pay through their wages via PAYE, while self-employed individuals report and pay through Self Assessment. Voluntary contributors pay directly to HMRC. Understanding how NICs are collected helps ensure accurate reporting and avoids penalties for non-compliance.
1. PAYE (Employees and Employers)
How It’s Deducted: For employees, Class 1 NICs are automatically deducted by their employer through the PAYE (Pay As You Earn) system. Employers also pay Class 1 NICs on top of wages, calculated on earnings above the Secondary Threshold. Deductions are made every pay period (weekly or monthly) based on current thresholds.
Role of Payroll Software: Employers are required to use Real Time Information (RTI)–compliant payroll software to calculate NICs and submit payment details to HMRC on or before each payday. This includes Full Payment Submissions (FPS) showing NICs due, and Employer Payment Summaries (EPS) where applicable. Payroll software should also account for NICs on benefits in kind, apply correct thresholds, and manage Employment Allowance claims.
2. Self Assessment (Self-Employed and Voluntary)
Reporting and Paying via Tax Return: Self-employed individuals pay Class 2 and Class 4 NICs through the Self Assessment system. These are calculated based on declared annual profits. Class 2 contributions are voluntary from 2024/25 but can be paid to protect entitlement to contributory benefits such as the State Pension. Class 4 remains mandatory above the lower profits threshold.
Payment Deadlines: NICs are due by 31 January following the end of the tax year. If your tax liability is over £1,000, you may also need to make payments on account by 31 January and 31 July each year. Late filings or payments may incur penalties and interest, so meeting Self Assessment deadlines is essential.
3. Paying Voluntary Contributions
Who Should Pay: Individuals not in regular employment, including those with low income, gaps in work history, or living abroad, may choose to pay voluntary Class 3 contributions. These help maintain eligibility for the State Pension and other contributory benefits. It’s usually worthwhile if you have fewer than 35 qualifying years on your NI record.
How to Check Your NI Record: You can view your National Insurance record by logging into your personal tax account on GOV.UK. This shows how many qualifying years you have, whether you have any gaps, and your eligibility for the full State Pension. You can also request a pension forecast to assess if paying voluntary NICs will increase your entitlement.
National Insurance collection depends on your employment status. Employees contribute automatically via PAYE, while the self-employed and voluntary contributors must actively report and pay. Regular checks of your NI record help identify and correct any gaps early, protecting future benefit entitlements and avoiding underpayment issues.
Section D: National Insurance and State Benefits
National Insurance is more than just a tax—it’s your gateway to a range of contributory state benefits. Your entitlement to payments such as the State Pension, Maternity Allowance, or Jobseeker’s Allowance depends largely on your National Insurance contributions. Ensuring you have enough qualifying years and that your NI record is accurate can have a major impact on your long-term financial security.
1. What NI Entitles You To
- State Pension: Most people need at least 10 qualifying years of NI contributions to get any State Pension, and 35 years to receive the full new State Pension.
- Maternity Allowance: Available to those who don’t qualify for Statutory Maternity Pay, including many self-employed women who have paid Class 2 NICs for at least 13 of the 66 weeks before their due date.
- Jobseeker’s Allowance: ‘New Style’ JSA is a contributory benefit based on NI paid in the previous two tax years. It’s available to unemployed individuals actively seeking work.
- Bereavement Support Payment: Paid to surviving spouses or civil partners, provided the deceased paid sufficient Class 1, 2, or 3 NICs.
2. How Contributions Affect Eligibility
Qualifying Years: A qualifying year is one in which you’ve paid or been credited with enough National Insurance contributions. You can gain qualifying years through employment, self-employment, or by receiving certain benefits such as Child Benefit or Carer’s Allowance. To receive the full new State Pension, you need 35 qualifying years; fewer years mean a proportionally reduced pension.
Minimum Thresholds: To earn a qualifying year, your earnings must exceed the Lower Earnings Limit (LEL), which is £6,396 for 2025/26 (subject to confirmation). You may still receive NI credits without direct contributions if you meet certain conditions—such as caring for a child under 12 or receiving certain disability benefits. These credits count toward your NI record even if no money is paid.
National Insurance directly affects your entitlement to the State Pension and several other key benefits. Keeping track of your contributions, checking for gaps, and paying voluntary NICs where needed can significantly impact your long-term financial well-being and help you plan effectively for retirement and beyond.
Section E: Employer Responsibilities
Employers in the UK have a legal obligation to manage National Insurance contributions (NICs) accurately. This includes calculating employee and employer NICs, submitting correct information to HMRC through Real Time Information (RTI), and ensuring timely payments of both payroll NICs and additional liabilities such as Class 1A on benefits. Businesses may also be eligible for NIC relief through the Employment Allowance.
1. What Employers Must Do
NI Through Payroll: Employers must deduct Class 1 NICs from employees’ wages and pay Class 1 employer NICs on top. These are calculated based on employee gross earnings, the applicable thresholds, and employment category (e.g. under 21s, apprentices). Both elements must be paid to HMRC in full and on time.
Reporting via RTI: Real Time Information (RTI) requires employers to submit payroll information every time employees are paid. This includes Full Payment Submissions (FPS) detailing earnings and deductions, and Employer Payment Summaries (EPS) for adjustments or reliefs. RTI ensures HMRC has up-to-date records for each employee and helps prevent underpayments or compliance issues.
Paying Class 1A on Benefits: If employers provide taxable benefits (e.g. company cars or private health insurance), they must pay Class 1A NICs annually. These are reported using forms P11D and P11D(b) and are due by 6 July following the end of the tax year. Employers who opt for a PAYE Settlement Agreement (PSA) to cover minor or irregular benefits must pay Class 1B NICs instead.
2. Employment Allowance
Who Qualifies: The Employment Allowance allows eligible employers to reduce their annual Class 1 NIC bill by up to £5,000. To qualify, your total employer NICs must have been less than £100,000 in the previous tax year, and your business must not fall into restricted categories such as solely employing domestic workers. Connected businesses may only claim once between them.
Claiming Process: Employers can claim the allowance via their payroll software by submitting an EPS with the Employment Allowance box ticked. The allowance will then be applied automatically each month until it is used up or the tax year ends. If eligibility ceases mid-year, HMRC must be notified.
Employers play a critical role in the National Insurance system. From deducting and remitting NICs to managing benefits and claiming reliefs like Employment Allowance, compliance is key to avoiding penalties. Leveraging payroll software, staying informed of regulatory changes, and regularly reviewing employer obligations help ensure efficient and lawful operation.
Section F: Planning and Compliance Tips
Effective National Insurance (NI) planning can help individuals maximise their entitlement to state benefits and avoid future shortfalls, while businesses can ensure compliance, reduce errors, and even lower liabilities. Whether you’re managing personal contributions or employer obligations, a proactive and well-informed approach is essential for good tax governance.
1. For Individuals
Check Your NI Record: Use your GOV.UK personal tax account to regularly check your National Insurance record. You can see how many qualifying years you’ve accumulated, identify any gaps, and access your State Pension forecast. Monitoring your record early allows you to take timely corrective action.
Fill Gaps with Class 3: If you have gaps in your contribution history—due to low income, career breaks, or living abroad—you can pay voluntary Class 3 NICs. These contributions help protect your entitlement to the State Pension and other benefits. In most cases, you can go back up to six tax years to make payments.
Pension Planning: Reaching the required 35 qualifying years is essential for the full State Pension. You should assess the value of paying Class 3 contributions and consider how your NI record aligns with your overall retirement strategy, including workplace or private pensions.
2. For Employers and Contractors
Staying Compliant: Employers must meet strict compliance standards, including timely RTI submissions, accurate NIC calculations, and appropriate reporting of benefits. Keep up to date with changes in thresholds, rates, and reporting requirements to avoid penalties and HMRC inquiries.
Outsourcing Payroll: If internal resources are stretched, consider outsourcing payroll to a specialist provider. This can ensure timely RTI submissions, automated compliance with NIC changes, and professional handling of P11D, P60, Class 1A/1B reporting, and EPS submissions.
NICs and IR35 Status: Contractors operating through personal service companies (PSCs) must ensure they are correctly assessing employment status under the IR35 rules. If IR35 applies, the client must deduct Class 1 employee NICs and pay employer NICs through PAYE. Misclassification can lead to significant liabilities for both parties.
Whether you’re an individual aiming to qualify for full state benefits or a business looking to reduce risk and improve payroll efficiency, National Insurance planning is an essential part of financial and legal health. Take control of your NI record, stay on top of your reporting obligations, and consider external support where complexity or risk is high.
Section G: Recent and Upcoming Changes
National Insurance (NI) is subject to frequent policy updates as part of broader tax and welfare reform. These changes can affect contribution rates, thresholds, and compliance rules, especially for employers and the self-employed. Staying informed helps you adapt quickly and avoid unexpected costs or entitlement issues.
1. Key Changes in 2024/25 and 2025/26
Rate Reductions and Threshold Freezes: In the 2024 and early 2025 fiscal updates, the main rate of Class 1 employee NICs was reduced—first from 12% to 10%, then to 8%. However, primary and secondary thresholds were frozen, meaning more income is now subject to NI due to wage inflation. Employers continue to pay Class 1 NICs at a flat 15% on earnings above the secondary threshold.
Class 2 Reform: Mandatory Class 2 NICs for self-employed individuals with profits above the Small Profits Threshold were abolished starting in 2024/25. However, self-employed individuals may still opt to pay voluntary Class 2 contributions to protect State Pension entitlement. Class 4 NICs now serve as the main contribution vehicle based on profits.
Making Tax Digital (MTD) for NICs: While MTD for Income Tax Self Assessment has been delayed to 2026, HMRC has hinted at potential integration of NICs into the digital tax framework. No formal timeline has been announced, but any such move would significantly impact reporting for the self-employed.
2. Policy Direction
Government Consultations: Ongoing reviews are exploring how to better align income tax and NICs, particularly in terms of thresholds and reporting. Consultation topics have included simplification of NICs for the self-employed, digitisation of contribution tracking, and reform of IR35 compliance for off-payroll workers.
Long-Term Structural Reform: Some tax experts advocate merging NICs with income tax to reduce complexity, but this would require major changes to how benefit entitlements are determined. Demographic pressures, such as an ageing population, may accelerate reforms as the government seeks to secure long-term funding for the welfare state.
Recent National Insurance changes have aimed to ease pressure on workers through rate cuts while maintaining government revenue via frozen thresholds. For the self-employed, Class 2 reform simplifies contributions but increases the need for proactive pension planning. Further structural and digital changes are likely over the next few years—making awareness and adaptability key for individuals and employers alike.
Section H: Frequently Asked Questions (FAQ)
1. What is the difference between National Insurance and income tax?
National Insurance (NI) funds specific state benefits like the State Pension and maternity allowance, whereas income tax goes toward general government spending. NI has different thresholds and rates and is only charged on earned income, unlike income tax which applies to most types of income.
2. How can I check my National Insurance record?
You can log into your personal tax account on GOV.UK to check your NI record. This shows your qualifying years, any gaps, and whether you’re eligible to make voluntary contributions.
3. Do I have to pay National Insurance if I’m self-employed?
Yes, most self-employed individuals pay Class 4 NICs based on annual profits. You may also choose to pay voluntary Class 2 contributions if you have low earnings but wish to protect your benefit entitlement.
4. What happens if I don’t pay enough National Insurance?
Insufficient contributions could affect your eligibility for the State Pension and other benefits. You may be able to fill gaps with voluntary Class 3 NICs to secure your entitlement.
5. What is the current rate of employee National Insurance?
For the 2025/26 tax year, the standard Class 1 employee rate is 8% on earnings above the Primary Threshold and 2% on earnings above the Upper Earnings Limit.
6. Can employers claim relief on their National Insurance bill?
Yes, eligible employers can claim up to £5,000 per year off their Class 1 NICs through the Employment Allowance. This is submitted via payroll software using an Employer Payment Summary (EPS).
7. What are Class 1A and Class 1B NICs?
Class 1A NICs are paid by employers on benefits in kind, such as company cars or private medical insurance. Class 1B NICs are paid under PAYE Settlement Agreements, where the employer covers the tax and NI on certain employee expenses.
8. How do I make voluntary contributions to National Insurance?
You can make Class 3 contributions to fill gaps in your record by contacting HMRC or using your online personal tax account. You’ll usually be able to pay for up to the past six tax years.
9. What is the impact of IR35 on National Insurance?
If IR35 applies, the engager (e.g. client or agency) must deduct employee NICs and pay employer NICs via PAYE. This effectively treats the contractor as an employee for tax and NI purposes.
10. What is the deadline for paying National Insurance if I’m self-employed?
NICs for self-employed individuals are paid via Self Assessment. Payment is due by 31 January following the end of the tax year, with possible payments on account due on 31 January and 31 July.
Section I: Conclusion
National Insurance is a core component of the UK’s tax and welfare system, directly affecting your entitlement to key benefits such as the State Pension, maternity support, and bereavement payments. Whether you’re employed, self-employed, or an employer, understanding how NI works—and keeping on top of your obligations—is essential for financial security and legal compliance.
For individuals, this means regularly reviewing your NI record, planning ahead for retirement, and filling any gaps in contributions. Voluntary contributions can make a meaningful difference to your long-term entitlements, especially if you’ve had career breaks, time abroad, or irregular income. It also means staying alert to annual rate changes and reforms like the abolition of mandatory Class 2 NICs.
For employers, managing NI effectively involves more than simply deducting it via payroll. You need to report accurately through RTI, apply the correct NIC classes, stay up to date on thresholds and reliefs, and account for benefits in kind through Class 1A or 1B NICs. The Employment Allowance can offer significant relief if claimed correctly, especially for smaller businesses.
As the government continues to reform the system—through digitalisation, structural simplification, and integration with income tax—everyone should stay informed. By understanding and managing your National Insurance responsibilities effectively, you’re not just meeting your legal obligations: you’re protecting your future benefits, minimising risk, and putting yourself or your business on a stronger financial footing.
Section J: Glossary
| Term | Definition |
|---|---|
| National Insurance (NI) | A UK tax on earnings and self-employed profits that funds state benefits like the State Pension and maternity allowance. |
| NICs | National Insurance Contributions—mandatory payments made by workers and employers to fund the welfare system. |
| Class 1 NICs | Contributions paid by employees and employers on earned income through PAYE. |
| Class 1A/1B NICs | Employer-only contributions on employee benefits in kind or via PAYE settlement agreements. |
| Class 2 NICs | Flat-rate contributions previously paid by the self-employed, now voluntary from 2024/25 onwards. |
| Class 3 NICs | Voluntary contributions to fill gaps in your NI record and protect benefit entitlement. |
| Class 4 NICs | Percentage-based contributions on self-employed profits, paid through Self Assessment. |
| Primary Threshold | The income level above which employees start paying Class 1 NICs. |
| Secondary Threshold | The income level above which employers start paying Class 1 NICs for employees. |
| State Pension | Government pension paid to eligible individuals based on their NI contributions. |
| Qualifying Year | A tax year in which enough NICs were paid or credited to count towards state benefit entitlement. |
| Employment Allowance | A relief that allows eligible employers to reduce their annual NICs bill by up to £5,000. |
| RTI (Real Time Information) | System requiring employers to report pay and NICs to HMRC each time employees are paid. |
| IR35 | Tax legislation targeting ‘disguised employment’ where contractors should be treated as employees for tax and NIC purposes. |
Section K: Additional Resources and Official Guidance
| Topic | Source / Link |
|---|---|
| Check your National Insurance record | GOV.UK – NI Record |
| Apply for or find your National Insurance number | GOV.UK – NI Number |
| Rates and thresholds for employers 2025/26 | GOV.UK – NIC Rates and Thresholds |
| Self-employed and National Insurance | GOV.UK – Self-employed NICs |
| Voluntary National Insurance contributions | GOV.UK – Voluntary NICs |
| Employment Allowance guidance | GOV.UK – Claim Employment Allowance |
| Benefits based on NI contributions | GOV.UK – Contributory Benefits |
| State Pension forecast | GOV.UK – State Pension Forecast |
| National Insurance and PAYE for employers | GOV.UK – PAYE and NI |
| HMRC Manual – National Insurance guidance | HMRC National Insurance Manual |
| IR35 and off-payroll working rules | GOV.UK – Off-payroll working rules (IR35) |
| Making Tax Digital updates | GOV.UK – Making Tax Digital |
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
