National Insurance Explained Simply

What Is National Insurance? (Definition)

National Insurance is a UK tax on earned income that funds the State Pension, the NHS, and a small group of contributory benefits. It is paid by employees, employers, and the self-employed, each under different rules. NI runs alongside income tax. You pay both from the same pay packet, but the two are calculated separately, apply to different income types, and go to different places. Our guide to what National Insurance goes towards has more detail on where the money ends up. NI applies only to earned income and stops once you reach State Pension age.

HMRC calls individual NI payments ‘Class 1’, ‘Class 2’, ‘Class 3’, or ‘Class 4’ contributions. Which one applies depends on whether you are an employee, self-employed, or paying voluntarily. Definition reference: gov.uk/national-insurance.

Is National Insurance a tax?

Yes. Despite the name, National Insurance is a tax in everything but label. Parliament sets it, HMRC collects it, and it is mandatory above the threshold. It is not refundable. The ‘insurance’ name dates from the 1911 National Insurance Act, when contributions were closer to a personal pot. Today, NI receipts go into the National Insurance Fund and pay current claimants. They do not go into a savings account in your name.

The Office for Budget Responsibility, HM Treasury, and the Institute for Fiscal Studies all classify National Insurance as a tax in their official publications.

Who Pays National Insurance?

Employees, employers, and the self-employed all pay National Insurance, under different rules. Employees (Class 1) pay NI on earnings above £12,570 per year. It is deducted automatically through PAYE. Employers pay a separate NI charge on top of wages. The self-employed pay Class 4 NI through Self Assessment. You stop paying NI entirely when you reach State Pension age.

• Employees (Class 1): pay NI on earnings above the Primary Threshold (£12,570 per year in 2026/27). It is deducted automatically from your pay through PAYE.
• Employers (Class 1 Secondary): pay NI on top of your wages above the Secondary Threshold. This is a cost to your employer. It does not come out of your take-home pay, but it makes employing people more expensive.
• Self-employed (Class 4): pay NI through Self Assessment on profits above the Lower Profits Limit (£12,570 in 2026/27).

You stop paying NI when you reach State Pension age, even if you keep working.

If you live in Scotland, note that NI rates and thresholds are the same across the whole UK. It is income tax that has separate Scottish bands, not National Insurance.

How Much National Insurance Do I Pay? (2026/27 rates)

As an employee in 2026/27, you pay 8% NI on earnings between £12,570 and £50,270 per year. You pay 2% on earnings above £50,270. For example, on a £30,000 salary you pay 8% on £17,430. That is roughly £1,394 per year, or £116 per month. Your employer also pays 15% on your earnings above £5,000. This does not reduce your take-home pay. It is a separate cost to them.

For example: if you earn £30,000 a year, you pay 8% on £17,430 (the amount above £12,570). That works out at roughly £1,394 per year, or about £116 per month.

Your employer also pays 15% on your earnings above the Secondary Threshold (£5,000 per year in 2026/27). This does not come out of your wages. It is part of the total cost of employing you. There is a separate upper secondary threshold of £50,270 for employees under 21, apprentices, and qualifying veterans. Employers pay no NI on their earnings up to that point.

Little changed for employees this tax year. The thresholds are frozen. As wages rise, more of your pay drifts into the 8% band. This is the same slow squeeze that happens with the frozen income tax Personal Allowance.

How is National Insurance calculated? (Worked example)

Class 1 NI for employees is charged in two bands, on earnings above the Primary Threshold (£12,570 per year). The 2026/27 rates are:

• 8% on earnings between £12,570 (the Primary Threshold) and £50,270 (the Upper Earnings Limit)
• 2% on earnings above £50,270

Worked example for a £35,000 salary:

1. Earnings inside the 8% band: £35,000 − £12,570 = £22,430
2. NI on the 8% band: £22,430 × 8% = £1,794.40 per year
3. Earnings above £50,270: £0 (the salary is below the threshold)
4. Total annual NI: £1,794.40, or about £149.50 per month

For a £65,000 salary, the sum uses both bands:

1. (£50,270 − £12,570) × 8% = £3,016
2. (£65,000 − £50,270) × 2% = £294.60
3. Total annual NI: £3,310.60

Enter any salary in the take-home pay calculator to see NI next to income tax, pension, and student loan deductions.

Do I pay National Insurance if I earn under £12,570?

No, you pay nothing below £12,570 a year. But a second threshold sits below that one. It matters a lot if you work part-time or term-time hours. This is the Lower Earnings Limit, which is £6,708 a year (£129 a week) in 2026/27. It went up from £6,500 (£125 a week) last year. It is the only Class 1 figure that changed this April.

If you earn at or above the Lower Earnings Limit but below £12,570, you pay no National Insurance. The tax year still counts as a qualifying year on your NI record. If you earn below the Lower Earnings Limit, the year does not count. The exception is if you get National Insurance credits another way, for example while claiming certain benefits or caring for someone.

That gap matters because qualifying years build your State Pension entitlement. Someone in a low-paid job for years can end up with free qualifying years and never pay a penny of NI. Someone on a similar total income across several small jobs might get none. The limit applies per job, not across all of them.

How much National Insurance do the self-employed pay?

If you are self-employed, you pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270, then 2% on profits above £50,270 in 2026/27. It is worked out on your profit, not your turnover. You pay it through Self Assessment, alongside your income tax, not monthly through payroll.

Class 2 is the confusing one. Compulsory Class 2 contributions no longer exist. Instead, if your profits are at or above the Small Profits Threshold of £7,105 in 2026/27 (up from £6,845 last year), you are treated as having paid Class 2. You get the qualifying year for your NI record and pay nothing. If your profits are below that, you can choose to pay voluntary Class 2 at £3.65 a week in 2026/27 (up from £3.50). This keeps the year on your record.

Side hustles are where this catches people out. If you do freelance work alongside a job, the Class 4 bands apply to your self-employed profit. They are separate from the NI already deducted from your wages. Both feed the same NI record. You earn only one qualifying year per tax year, however many sources it comes from.

What Does National Insurance Fund?

National Insurance contributions fund the State Pension, the NHS, and contributory benefits. These include Statutory Maternity Pay, Statutory Sick Pay, and contribution-based Jobseeker’s Allowance. You need 35 qualifying years of NI contributions for the full new State Pension (£241.30 a week in 2026/27). You need at least 10 qualifying years to get any State Pension at all.

Your NI contributions build up your entitlement to:

• State Pension: you need 35 qualifying years of NI contributions for the full new State Pension (currently £241.30 per week in 2026/27, after a 4.8% triple lock rise in April 2026). You need at least 10 years for any State Pension at all.
• NHS: a portion goes to funding healthcare.
• Benefits: including Statutory Maternity Pay, Statutory Sick Pay, and contribution-based Jobseeker’s Allowance.

The money is not saved in an account with your name on it. NI receipts go into the National Insurance Fund and pay today’s pensioners and claimants. Our breakdown of what National Insurance goes towards sets this out in more detail. Your own retirement income is more likely to be a workplace pension topped up by the State Pension than the State Pension alone.

How Is National Insurance Different From Income Tax?

Income tax applies to almost all income. That includes wages, savings interest, dividends, and rental income. It continues for life. National Insurance only applies to earned income from employment or self-employment. It stops at State Pension age. It is nominally linked to specific benefits and the State Pension, rather than going into general government revenue. Both are currently collected through PAYE and share the same £12,570 starting threshold.

The key differences:

• What it applies to: Income tax applies to almost all income: wages, savings interest, dividends, and rental income. NI only applies to earnings from employment or self-employment.
• Age: Income tax continues for life. NI stops at State Pension age.
• Thresholds: They are currently aligned (both start at £12,570). This has not always been the case. In the past, they have been different.
• What it funds: Income tax goes into general government revenue. NI is nominally linked to specific benefits and the State Pension.

NI only touches earned income, so money from investments never attracts it. Interest and gains inside an ISA are free of both NI and tax. Profits on shares held outside an ISA fall under Capital Gains Tax, not National Insurance.

What is my NI number?

Everyone gets a National Insurance number automatically at age 16. It arrives in the post a few months beforehand. It is unique to you, in the format AB 12 34 56 C, and tracks your contributions throughout your working life. You need it for any job and when claiming certain benefits.

You can find yours on your payslip, P60, or by logging into the HMRC app.