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National Insurance is the second biggest deduction
from your pay after income tax — yet most people
have only a vague idea of what it is and what they
are paying for. This guide explains everything
clearly.
What is National Insurance?
National Insurance contributions (NICs) are payments
made by employees, employers and the self-employed
to fund certain state benefits. Unlike income tax
which goes into general government spending, NI
contributions have a direct link to your entitlement
to specific benefits — most importantly the State
Pension.
Every year you pay National Insurance counts as a
qualifying year towards your State Pension record.
This is why NI contributions matter even if you
feel like you are getting nothing back in the
short term.
What does National Insurance fund?
National Insurance funds the State Pension, NHS
services, Jobseeker’s Allowance, Employment and
Support Allowance, Maternity Allowance and
bereavement benefits.
Employee NI rates 2026/27
You pay no National Insurance on earnings up to
£12,570 — this is the Primary Threshold.
You pay 8% National Insurance on earnings between
£12,570 and £50,270 — this upper limit is called
the Upper Earnings Limit.
You pay 2% National Insurance on all earnings
above £50,270.
On a salary of £40,000 for example, you would pay
8% on £27,430 (£40,000 minus the £12,570 threshold)
— which works out at £2,194 per year or £183 per
month.
Employer National Insurance contributions
Your employer also pays National Insurance on your
behalf. This does not appear on your payslip — but
it represents a significant additional cost on top
of your salary.
From April 2025 employers pay 15% on earnings
above £5,000 per year. On a £40,000 salary, your
employer pays approximately £5,250 per year in
employer NI — meaning the true cost of employing
you is closer to £45,250.
This is important context when negotiating salaries
— employers are aware of this total cost even if
it is invisible on your payslip.
NI and your State Pension
Every year you make National Insurance contributions
counts as a qualifying year towards your State
Pension. You need a minimum of 10 qualifying years
to receive any State Pension and 35 qualifying
years to receive the full new State Pension of
£221.20 per week in 2026/27.
Years where you were employed, self-employed or
receiving certain benefits can all count as
qualifying years. Years where you were not working
and not receiving qualifying benefits may create
gaps in your NI record.
You can check your National Insurance record at
gov.uk/check-national-insurance-record. If you
have gaps you may be able to fill them by making
voluntary Class 3 NI contributions — often a
very cost-effective way to boost your State
Pension entitlement.
Who does not pay National Insurance?
You do not pay National Insurance on earnings
below the Primary Threshold of £12,570.
You stop paying National Insurance when you reach
State Pension Age — currently 66 — even if you
continue working.
People on certain benefits may receive NI credits
which count towards their State Pension record
without making actual contributions.
NI and salary sacrifice
If your employer uses a salary sacrifice arrangement
for pension contributions or other benefits, your
gross salary is reduced before National Insurance
is calculated. This means you pay less NI as well
as less income tax — one of the key advantages
of salary sacrifice over standard deductions.
Class 1, 2 and 3 NI — what is the difference?
Class 1 NI is paid by employees and their employers
on employment earnings — this is what appears on
your payslip.
Class 2 NI is paid by self-employed people at a
flat weekly rate.
Class 3 NI is voluntary contributions you can make
to fill gaps in your NI record and protect your
State Pension entitlement.
Class 4 NI is paid by self-employed people on
their profits above a certain threshold.
Checking your NI record
You can view your full National Insurance record
and State Pension forecast online at gov.uk using
your Government Gateway account. It shows every
qualifying year, any gaps and what your State
Pension forecast is based on your current record.
If you have gaps from years spent caring for
children or family members, you may be entitled
to NI credits that can be added to your record
without any payment.
Use the Payslp salary calculator to see exactly
how much National Insurance you pay on your
current salary — and what the impact would be
of working part time, taking a pay cut or
increasing your salary.