What National Insurance actually is
National Insurance (NI) is a second payroll tax that sits alongside income tax, but it works on completely different rules. Income tax uses your annual total. National Insurance, for employees, is calculated on each pay period in isolation. Income tax has a personal allowance that tapers away above £100,000. National Insurance does not taper. Income tax applies to rental income, dividends and pensions. National Insurance applies only to earnings from work.
Those differences matter in practice. If you are paid a £30,000 bonus in a single month, your NI on that month is calculated as if you earned at that rate all year, which pushes most of the bonus into the 2% band. Spread the same money over twelve months and far more of it sits in the 8% band. Nobody plans a bonus around this, but it explains why your payslip NI can swing wildly from month to month while your tax code stays the same.
The other thing to understand is that National Insurance is not purely a tax. It buys entitlement. Your record of contributions determines your State Pension, and it gates access to several contributory benefits. That link is loose, and the money goes into general spending rather than a personal pot, but the record itself is real and it is worth protecting.
The classes: who pays what
There are four classes that most people and businesses will encounter:
- Class 1 primary: paid by employees, deducted at source through PAYE.
- Class 1 secondary: paid by employers on top of the salary. This is the one that changed most on 6 April 2025.
- Class 2: the flat weekly self-employed contribution. It is no longer compulsory, but it still exists as a voluntary payment.
- Class 4: the profit-based contribution paid by the self-employed through Self Assessment.
Alongside those sit Class 3 (voluntary contributions to fill gaps in your record), Class 1A (employer NI on benefits in kind such as company cars and private medical cover) and Class 1B (on PAYE Settlement Agreements). Directors of their own limited company pay Class 1 on salary, not Class 2 or Class 4, which is the whole basis of the low-salary, high-dividend strategy.
Class 1: what employees pay in 2025/26
Employee National Insurance in 2025/26 runs at 8% on earnings between the primary threshold of £12,570 a year (£242 a week) and the upper earnings limit of £50,270 a year (£967 a week), then 2% on everything above that. These figures are published in HMRC's rates and thresholds for employers 2025 to 2026.
Below the primary threshold, employees pay nothing. But there is a second, lower line worth knowing: the lower earnings limit of £6,500. Earn at or above that and you are credited with a qualifying year for State Pension purposes even though you paid nothing. Earn below it and you get no credit at all. Someone on a small part-time wage of £6,000 a year is therefore quietly losing a qualifying year, and a £500 pay rise would fix it at zero contribution cost.
Note that the employee rate has not changed since 6 April 2024, when it dropped from 10% to 8%. The 2025 changes were aimed entirely at employers.
Class 1 secondary: the employer bill after April 2025
This is the change that reshaped hiring costs. From 6 April 2025:
- The employer (secondary) rate rose from 13.8% to 15%.
- The secondary threshold, the point at which employer NI starts, fell from £9,100 to £5,000 a year (£96 a week).
The threshold cut is the bigger deal, and it is the part most coverage understated. Dropping the starting point by £4,100 adds £615 of employer NI per employee before you even account for the rate rise. It hits part-time and low-paid roles hardest, because those are the jobs where a larger share of the wage now sits inside the charging band. A worker on £6,000 a year used to generate zero employer NI. In 2025/26 they generate £150.
There are still zero-rate reliefs worth checking. Employers pay 0% secondary NI on earnings up to £50,270 for employees under 21, apprentices under 25, and qualifying armed forces veterans in their first year of civilian employment. On a £30,000 salary that relief is worth £3,750 a year, and it is claimed simply by using the correct NI category letter in payroll.
2025/26 National Insurance rates and thresholds
| Contribution | Threshold / band (annual) | Rate 2025/26 |
|---|---|---|
| Class 1 employee (primary) | Below £12,570 | 0% |
| Class 1 employee (primary) | £12,570 to £50,270 | 8% |
| Class 1 employee (primary) | Above £50,270 | 2% |
| Lower earnings limit (State Pension credit) | £6,500 | 0% but year counts |
| Class 1 employer (secondary) | Above £5,000 | 15% |
| Employer NI, under 21 / apprentice under 25 / veteran | £5,000 to £50,270 | 0% |
| Employment Allowance | Offset against employer NI | £10,500 |
| Class 1A / Class 1B (benefits, PSAs) | On taxable value | 15% |
| Class 2 (self-employed, voluntary) | Small profits threshold £6,845 | £3.50 per week |
| Class 3 (voluntary) | Any gap year | £17.75 per week |
| Class 4 (self-employed) | £12,570 to £50,270 | 6% |
| Class 4 (self-employed) | Above £50,270 | 2% |
| Apprenticeship Levy | Pay bill above £3m (£15,000 allowance) | 0.5% |
Sources: HMRC rates and thresholds for employers and rates and allowances: National Insurance contributions. You can run any of these through the BizTaxCalc National Insurance calculator rather than doing the banding by hand.
Employment Allowance: the £10,500 offset most small employers should claim
Employment Allowance reduces your employer Class 1 NI bill by up to £10,500 in 2025/26, up from £5,000. Just as importantly, the old rule that barred employers with more than £100,000 of secondary NI in the previous year was removed from 6 April 2025, so it is now open to far larger businesses. See GOV.UK: claim Employment Allowance.
It is not automatic. You claim it through your payroll software via an Employer Payment Summary, and the claim does not roll over indefinitely without being re-signalled each tax year. It is an offset, not a cash refund: if your employer NI for the year is £4,000, you save £4,000, not £10,500.
The exclusion that catches most micro-companies: a limited company whose only employee paid above the secondary threshold is a director cannot claim it. Add a second employee earning above £5,000 and eligibility returns. Public-sector-style bodies doing more than half their work under public contracts are also generally excluded.
Class 2 and Class 4: the self-employed picture
Compulsory Class 2 was abolished from April 2024, and that structure continues in 2025/26. If your self-employed profits are at or above the small profits threshold of £6,845, HMRC treats Class 2 as paid. You get the State Pension qualifying year without handing over any money.
If your profits are below £6,845, nothing is credited automatically, and you have a decision to make. You can pay Class 2 voluntarily at £3.50 a week, which is £182 for a full year, and secure the qualifying year. That is one of the best-value payments in the UK tax system, because the equivalent gap filled later with Class 3 costs £17.75 a week, roughly £923 for the same year. If you are having a genuinely lean year, pay the £182.
Class 4 is the real self-employed contribution: 6% on profits between £12,570 and £50,270, then 2% above £50,270, per GOV.UK self-employed NI rates. Profits here means taxable profits after allowable expenses and capital allowances, not turnover. Class 4 buys you nothing: it carries no State Pension or benefit entitlement whatsoever. Only Class 2 does that on the self-employed side, which is why the credit at £6,845 matters more than most people realise.
Worked example: a £35,000 hire and a £45,000 sole trader
Employing someone on £35,000 in 2025/26.
- Employee NI: (£35,000 minus £12,570) = £22,430 at 8% = £1,794.40, deducted from their pay.
- Employer NI: (£35,000 minus £5,000) = £30,000 at 15% = £4,500, paid by the business on top.
- Total cost of the role before pension and benefits: £39,500.
Under the 2024/25 rules (13.8% above £9,100) the same hire would have cost the employer £3,574.20. The April 2025 changes added £925.80 to that single role, an increase of about 26% in the NI line. Multiply across a team of ten and you are looking at roughly £9,250 of new annual cost. If Employment Allowance is available, the first £10,500 of that £45,000 total employer NI bill is wiped out.
A sole trader with £45,000 of profit.
- Class 4: (£45,000 minus £12,570) = £32,430 at 6% = £1,945.80.
- Class 2: nil, because profits exceed £6,845 and the year is credited automatically.
- Total NI: £1,945.80.
Compare that with an employee on a £45,000 salary. They pay £2,594.40 of Class 1, and their employer pays £6,000 of secondary NI. The same £45,000 of economic activity attracts £8,594.40 of NI through employment versus £1,945.80 through self-employment. That gap of over £6,600 is the single biggest reason HMRC polices employment status and IR35 so aggressively. You can model your own figures with the sole trader tax calculator.
How and when each class is actually paid
Class 1, both employee and employer, is paid through PAYE. HMRC must have the money by the 22nd of the following month if you pay electronically (the 19th if you still pay by post). Small employers with a monthly PAYE liability under £1,500 can pay quarterly.
Class 1A on benefits in kind follows the P11D cycle: forms are due by 6 July after the tax year ends, and the Class 1A payment is due by 22 July.
Class 2 and Class 4 are collected through Self Assessment. For the 2025/26 tax year, the online return and the balancing payment are both due by 31 January 2027. Class 4 also feeds into payments on account, so a first-year sole trader can face a bill of 150% of their liability in that first January. Budget for it.
Directors are a special case: their Class 1 is calculated on an annual earnings period rather than pay period by pay period, so a director drawing an irregular salary will often see no NI for several months and then a large deduction once the annual threshold is crossed.
What National Insurance actually buys you
The headline entitlement is the new State Pension. You need 10 qualifying years to get anything at all, and generally 35 qualifying years for the full amount, which was £230.25 a week in 2025/26 (£241.30 in 2026/27). See GOV.UK on your NI record and State Pension.
Class 1 contributions also unlock contribution-based benefits that Class 4 does not: New Style Jobseeker's Allowance, contributory Employment and Support Allowance, and Maternity Allowance rules differ between the employed and self-employed. Class 2 gives the self-employed access to Maternity Allowance and ESA, which is another reason not to let a low-profit year go uncredited.
Check your record at GOV.UK: check your National Insurance record. It shows gaps and tells you what filling each one would cost. Paying Class 3 voluntary contributions at £17.75 a week is expensive per year, but a single filled year can add roughly £6.60 a week to your State Pension for life, which typically pays for itself within about three years of retirement. Check before you pay, though, because filling a year adds nothing if you are already on track for 35 years.
Three mistakes worth avoiding
Assuming the £12,570 threshold is the same for employers. It is not, and has not been since 2022. Employer NI starts at £5,000. Paying yourself a "tax-free" £12,570 director's salary now triggers £1,135.50 of employer NI unless Employment Allowance covers it.
Forgetting Class 1A on benefits. A company car or private medical scheme carries 15% employer NI on its taxable value, and that is easy to omit from a budget until the July payment lands.
Ignoring a low-profit year. £182 of voluntary Class 2 is cheap insurance. Discovering the gap fifteen years later and paying Class 3 costs five times as much, and after the standard six-year window you may not be able to fix it at all.