Your FAQs on National Insurance Contributions – answered

* Please note that some of this article has now been updated to reflect forthcoming changes due in April 2025 as a result of the Chancellor’s Budget Announcement held on 30th October 2024. It will be updated in full come April 2025.

In the UK, we pay an array of different taxes whether it is directly as income tax or corporation tax; indirectly on goods and services through VAT, duties and excise tax on fuel, alcohol and cigarettes; or tax only in certain circumstances such as stamp duty land tax if you buy property; or inheritance tax if you have an estate over the threshold. When it comes to national insurance however, many of us are not clear on what this is, how much we pay, and what it’s applied to. This article will answer all your need-to-know questions on national insurance contributions (NICs) and how they are relevant to you.

What is National Insurance?

National Insurance is the UK’s version of social security which means it is a specific tax that is collected to fund welfare state benefits such as the state pension. It is often thought of as a second form of income tax because how much you need to pay is based on how much one earns. NIC is the UK’s second largest tax after income tax, and the Institute for Fiscal Studies (IFS) TaxLab estimates that it amounts to a sixth of the total tax revenue for the country.

What does National Insurance Pay for?

The government uses NI contributions to pay for the following benefits:

• Basic state pension and additional state pension (only applicable to men born before April 1951 and women born before April 1953)
• New state pension (this is now applicable to all men born after April 1951 and women born after April 1953)
• Contribution-based jobseeker’s allowance
• Contribution-based employment and support allowance
• Maternity allowance
• Bereavement support payment

Whether you are eligible to receive all or some of these benefits will be dependent on what class of NI you pay. We’ll explain the different classes later on in the below sections.

Who has to pay National Insurance?

Paying national insurance becomes mandatory for every UK citizen who is above the age of 16 and is earning over the ‘Primary Threshold’. The primary threshold for the tax year 2024/25 is £242 per week or £1,048 per month. The primary threshold has remained the same since July 2022.

Where you are an employer, you also must make NI contributions towards your employee’s national insurance record where they are earning above the ‘Secondary Threshold’. The secondary threshold for the tax year 2024/25 is £175 per week or £758 per month (equivalent to £9,100 a year). The secondary threshold is due to reduce down to £5,000 a year come April 2025.

Self-employed people only have to pay NI once they have annual profits of £12,570 and over. However, if you are not employed, have low earnings, or live abroad, you will not have to make NICs. Instead, you may choose to make voluntary contributions towards your NIC record in order to maintain your eligibility to receive state benefits if you wish. Those who are of the state pension age and over but are still working also do not need to pay NI; however, their employer must continue to do so.

What are the other NI thresholds?

National Insurance is without doubt rather convoluted, so there are additional thresholds you should be aware of. The Lower Earnings Limit (LEL) applies to employees only. This is where an employee earns at least £123 per week or £533 per month but less than the primary threshold. Where you fall within the LEL, you are not required to make contributions; however, you will be treated as if you had for your NI record. If you’re self-employed there is a similar policy (referred to as the Small Profits Threshold) whereby; so long as you earn at least £6,725 profits in a year but less than £12,570 you do not have to make NICs, but you are treated as if you had done.

On the other end of the spectrum there is an Upper Earnings Limit (UEL) which again only applies to employees. Where an employee’s earnings are £967 a week or more, or £4,189 a month or more, then a lower rate of NI will apply from this point. Again, there is a similar policy for sole traders whereby a lower rate of NI will apply at the point where you earn profits of £50,270 and over.

Finally, there are also other specific upper secondary thresholds for those working in certain settings such as under apprenticeships. You can find a full list with details on Gov.uk.

What are the different classes of National Insurance?

So, we’ve explained the different thresholds which determine how much a person needs to be earning before they must pay NI. Now, we’ll move onto the different ‘Classes’ of NI which set out what type of NI you pay. There are four different classes which are dependent upon your employment status. Each is explained in more detail below:

What is Class1 National Insurance?

Class 1 NI is paid for by anyone who is an employee who is earning at least the primary threshold limit and is under the state pension age.

What is the difference between Class1, Class1A and Class1B NI?

Whilst Class 1 is paid for by employees, it is further subdivided into Class 1A and Class 1B which is paid by employers who must make payments towards their employee’s NI records. Class 1A applies to salaries alone and Class 1B is applicable to any taxable benefits-in-kind they may receive.

What is Class 2 National Insurance?

Class 2 NI used to be paid by the self-employed. It applied to those who earned over the Small Profits Threshold but under £12,570. Class 2 NI was a fixed rate of £3.45 per week and these payments went towards your state pension eligibility. Where you earned over £12,570, you used to have to pay both Class 2 and Class 4 NI.

As of April 2024 however, Class 2 NI is being phased out. There is now no longer any need to pay Class 2 NI where you are already paying Class 4 NI and you will be treated as having made Class 2 NI contributions for your state pension record. However, if you are not earning up to the point where you pay Class 4 NI, you can still choose to pay voluntary Class 2 if you wish to make contributions towards your NI record for the state pension. 

What is Class 3 National Insurance?

Class 3 NI is paid for those who are not working or are earning under the Small Profits Threshold. These are voluntary contributions which allow you to maintain your eligibility for the state pension.

What is Class 4 National Insurance?

Class 4 NI is paid for those who are self-employed and have profits of at least £12,570 in a year.

How much do I pay for National Insurance?

Now that we’ve gone over the minimum earning thresholds which determine whether or not you will need to make NICs and have explained the different Classes of NI which indicates what type of NI you need to pay, we can now move on to explain how much NI you will need to pay. However, again, this is not straightforward and is dependent upon a number of other factors.

How much do I have to pay for National Insurance if I’m an employee?

For employees paying Class 1 NI, calculating how much you will need to pay is based on how much you earn and your category letter:

Category Letter	£123 to £242 a week (£533 to £1,048 a month)	£242.01 to £967 a week (£1,048.01 to £4,189 a month)	Over £967 a week (£4,189 a month)
A – All employees apart from those in groups B, C, H, J, M, V and Z in this table	0%	8%	2%
B – Married women and widows entitled to pay reduced National Insurance	0%	1.85%	2%
C – Employees over the State Pension age	n/a	n/a	n/a
H – Apprentices under 25	0%	8%	2%
J – Employees who can defer National Insurance because they’re already paying it in another job	0%	2%	2%
M – Employees under 21	0%	8%	2%
V – Employees who are working in their first job since leaving the armed forces (veterans)	0%	8%	2%
Z – Employees under 21 who can defer National Insurance because they’re already paying it in another job	0%	2%	2%

This is not the full list of category letters but a selection of the most common ones. For a full list with information on what each means, you can visit the Gov.uk website.

It is important to be aware that when you’re an employee, NI is often deducted from your salary at the same time as when income tax is collected but it is not calculated in the same way based on your annual earnings. Instead, NI is calculated on your individual pay period, whether that’s weekly, monthly or a different period as agreed with your employer. This means that if there are periods where you earn more, you will be charged more, and when you earn less, you will be charged less, or not at all if you do not meet the minimum threshold.

To clarify and further explain the table above, we’ll provide an illustration as an example. You are an employee who falls into Category A and you earn £1,500 per week. To calculate how much NI you will pay you would apply the following percentage rates:

• No NI on the first £242 of earnings
• 8% NI on earnings between £242.01 and £967
• 2% on earnings between £967.01 and £1,500
• In total you would pay £68.66 per week

How much do I have to pay for National Insurance if I’m an employer?

Employers must make employer contributions (also known as ‘secondary contributions’) towards their employee’s contribution record. How much you have to pay as an employer is dependent on how much your employee earns as well as their category letter:

Category Letter	£123 to £175 a week (£533 to £758 a month)	£175.01 to £481 a week (£758.01 to £2,083 a month)	£481.01 to £967 a week (£2,083.01 to £4,189 a month)	Over £967 a week (£4,189 a month)
A – All employees apart from those in groups B, C, H, J, M, V and Z in this table	0%	13.8%	13.8%	13.8%
B – Married women and widows entitled to pay reduced National Insurance	0%	13.8%	13.8%	13.8%
C – Employees over the State Pension age	0%	13.8%	13.8%	13.8%
H – Apprentices under 25	0%	0%	0%	13.8%
J – Employees who can defer National Insurance because they’re already paying it in another job	0%	13.8%	13.8%	13.8%
M – Employees under 21	0%	0%	0%	13.8%
V – Employees who are working in their first job since leaving the armed forces (veterans)	0%	0%	0%	13.8%
Z – Employees under 21 who can defer National Insurance because they’re already paying it in another job	0%	0%	0%	13.8%

Again, this is not the full list of category letters as explained above. If we were to use the same example where you have hired the employee who falls under Category A and is earning £1,500 per week you would calculate your NI liability as:

• No NI on the first £175 of earnings
• 13.8% on earnings between £175.01 and £481(42.22)
• 13.8% on earnings between £481.01 and £967 (£67.07)
• 13.8% on the remaining earnings of £532.99
• In total you would pay £182.85 per week

If the employee were to receive any taxable benefits, the same rates would apply to the value of their benefits for Class 1B NI. To help alleviate your employer’s NI liability, you may wish to claim employment allowance where eligible as this can help reduce your NI bill by up to £5,000.

Employer’s NI is due to increase by 1.2% to 15% come April 2025 alongside employment allowance which will increase to £10,500.

How much do I have to pay for National Insurance if I’m self-employed?

Calculating NI for the self-employed is slightly different to those who are working as employees or are employers. There are no Category letters but instead there are two different Classes that needed to be paid historically, as well as the phasing out of Class 2 which still currently remains on a voluntary basis. In addition to this, Class 2 and Class 4 are calculated based on different time periods.

So as of April 2024, there is no longer a mandatory requirement to make Class 2 NI payments. However, if your earnings do not qualify you to be treated as if you had made Class 2 contributions, then you may wish to make voluntary contributions in order to ensure you protect your state pension entitlement. This remains at a fixed weekly rate of £3.45 a week.

Class 4 NI however remains mandatory for all those self-employed who earn at least £12,570 a year. Instead of a weekly rate, Class 4 is calculated on your annual profits. The rates are:

Annual profits of £12,570	Annual profits of between £12,570.01 and £50,270	Annual profits of £50,270.01 and more
0%	6%	2%

As an example, you are a sole trader who has earned £65,000 in profits in the most recent tax year. Your NI liability would be calculated as:

• No mandatory NI on profits on first £12,570 of profits
• 6% on profits between £12,570.01 and £50,270
• 2% on profits on anything from £50,270.01
• If your annual profits were £60,000 you would pay a total of £2,537 for the year

How much do I need to pay for voluntary contributions?

Making Class 3 NI contributions is optional. You may choose to make voluntary NICs if you are not currently working, are on a low income, or are not currently living or working in the UK but wish to maintain your benefit entitlement to certain benefits such as the state pension. When you are not making NICs this will show up as ‘gaps’ on your national insurance record. You’re able to check if you have any gaps in your national insurance record online. For the tax year 2024/25 you need to pay a fixed rate of £17.45 a week in voluntary contributions to fill in any gaps of unpaid NI. You’re able to fill in gaps for up to the past 6 years.

How much NI do I need to pay to get the state pension?

One of the main reasons people choose to pay voluntary contributions is to ensure they remain entitled to the state pension. To be eligible, it is not how much you have paid in NI but the number of years you have been contributing.

Since April 2016, the New State Pension was introduced which applies to men born after April 1951 and women born after April 1953. If you were born before these dates,  different rules apply and you may be eligible to receive the Basic State Pension and Additional State Pension.

For those eligible to receive the New State Pension, you must have at least 10 years’ worth of contributions to receive some of it and have paid a minimum of 35 years to receive the full state pension.

What are national insurance credits?

Some people may not be able to pay Class 3 NI such as those who are currently job seeking and are unemployed, those taking time out to care for children or other dependents, or those who are too ill to be working. In these cases, you may be eligible to receive NI credits which help towards building your qualifying years for your NI record.

There are two types of NI credits: Class 1 which covers your state pension and other benefits such as jobseekers allowance and Class 3 which only covers your state pension. Depending on your situation, you may be eligible for one or the other. Some credits are applied to your record automatically, whereas for others you have to contact your local job centre or apply for them in writing to HMRC. You can check your eligibility and find out how to receive the credits here.

How do I pay NI?

Making NI payments is relatively straightforward. If you are an employee, it is automatically calculated and deducted from your gross salary by your employer so there is nothing you need to do. If you have more than one job, then you may want to check that you are not over-paying NI.

For employers, as part of running your payroll, you’ll need to pay both employee and employer NICs directly to HM Revenue and Customs. You’ll deduct the employee’s contributions direct from their gross salary and then pay your secondary contributions on top.

If you are self-employed, you’ll make NI payments alongside your income tax by completing your self-assessment tax return. When submitting your tax return online, HMRC will tell you exactly how much you owe in income tax and how much you need to pay for your NI so you do not have to calculate this yourself.

To make voluntary Class 3 NI payments you can do this online by approving a payment through your online bank account, by online or telephone banking, or at your bank or building society. To make regular voluntary payments you can set up a direct debit (note that your payments will differ each month depending on whether the month has 4 or 5 weeks). We would recommend you contacting the Future Pension Centre before making voluntary NICs as making payments will not always entitle you to benefits and they will be able to advise.

No matter what type of NI you are paying, you will need to ensure that you have an assigned national insurance number first.

How do I get a NI number?

Your national insurance number is normally automatically sent to you in a letter from HMRC shortly before you turn 16. It is a unique number that does not change (you cannot replace it) and that you keep for the rest of your life. It allows any NICs to be recorded against your name only. If you have forgotten your NI number, you’ll be able to find it on documents such as payslips or P60, or you can find it online. If for whatever reason you were never sent an NI number you can apply for one.

When can I stop making NICs?

Whether you’re working as an employee or are self-employed, you’re entitled to stop making NICs once you have reached the state pension age. This does not mean you must stop working and you can continue to so do if you wish. The one slight difference is that employees will stop making NICs once they have reached the state pension age, whereas the self-employed will stop paying from 6 April (the start of a new tax year) after they have reached the state pension age.

If you are an employer with employees who are at or over the state pension age, you must continue to make employer contributions at the employer NI tax rate.

Need help processing your national insurance with HMRC?

As you can see, tackling the topic of national insurance is not simple! Ensuring the correct NI has been paid can be tricky. If you’re an employer we can support you through our comprehensive payroll service, or if you’re self-employed we’ll be able to assist through helping you complete your self-assessment tax return. Unfortunately, we cannot provide advice as to whether you should make voluntary contributions or not, but you can get independent advice from HMRC.