What is National Insurance and why are you paying it?

National Insurance (NI) is a tax on earnings and self-employed profits paid by workers and employers across the United Kingdom. It was originally introduced to fund the welfare state — including the State Pension, statutory sick pay, maternity leave, and unemployment benefits. While Income Tax goes into the government's general funds, National Insurance theoretically feeds the National Insurance Fund, though in practice it functions as a closely related supplementary income tax.

Who pays National Insurance?

You pay mandatory National Insurance contributions if you are 16 or older and are either an employee earning above the Primary Threshold (£242 a week / £1,048 a month in 2026/27) or self-employed making profits above the Small Profits Threshold. You stop paying NI automatically when you reach State Pension age, even if you continue to work full time.

The four main National Insurance Classes

The UK operates different "Classes" of NI depending on how you earn your income:

• Class 1 (Employee NI): Deducted automatically from your wages by your employer under the PAYE system. This is the class that appears on your payslip.
• Class 1 Employer NI: A separate tax your employer pays on your wages. It does not reduce your gross pay, but it significantly affects how much a company can afford to pay you — from April 2025, this rose to 15% on earnings above the Secondary Threshold.
• Class 2 NI (Self-Employed): Largely abolished for most self-employed workers since April 2024. Voluntary contributions remain available to protect your State Pension entitlement.
• Class 4 NI (Self-Employed Profits): Paid annually through Self Assessment. In 2026/27, the rate is 6% on profits between £12,570 and £50,270, and 2% above that.

Class 1 Employee NI Rates (2026/27)

Following two rounds of NI cuts (in January 2024 and April 2024), the main employee NI rate now stands at 8%. Here is the full 2026/27 breakdown:

• 0% on earnings up to £1,048 a month (£12,570 a year).
• 8% on earnings between £1,048 and £4,189 a month (£50,270 a year).
• 2% on any earnings above £4,189 a month (over £50,270 a year).

This means a worker earning £40,000 a year will pay approximately £2,194 in employee NI contributions annually, or about £183 a month.

National Insurance Category Letters on Your Payslip

Your payslip will always show a National Insurance Category Letter. This letter tells your employer exactly which rate to apply. The most common categories are:

• A: Standard employee rate. The vast majority of workers fall here.
• B: Married women and widows entitled to pay a reduced rate under an old "Married Woman's Election."
• C: Employees who have reached State Pension age. They pay 0% employee NI.
• H: Apprentices under 25 — exempted from employer NI up to the Upper Secondary Threshold.
• M: Employees under 21.
• V: Veterans in their first year of eligible civilian employment after leaving the armed forces.

National Insurance and your State Pension

Every year you pay NI contributions (or receive NI credits from activities like parenting or caring) counts as a "qualifying year" towards your State Pension. You need at least 10 qualifying years to receive any State Pension at all, and a full 35 qualifying years to receive the maximum new State Pension (currently £221.20 per week in 2026/27). You can check your NI record and State Pension forecast instantly by logging into your HMRC Personal Tax Account at GOV.UK.