Understanding UK National Insurance Contributions: Complete 2025/26 Guide
What is National Insurance and Why Do You Pay It?
National Insurance is a tax on earnings and self-employed profits that was introduced in 1911. Unlike income tax, which funds general government spending, National Insurance contributions (NICs) specifically build your entitlement to certain state benefits.
When you pay National Insurance, you're contributing toward:
- State Pension - The most significant benefit for most people
- Employment and Support Allowance - Support if you're unable to work due to illness or disability
- Maternity Allowance - Financial support during pregnancy and after childbirth
- Bereavement Support Payment - Financial help if your spouse or civil partner dies
- Jobseeker's Allowance - (Contribution-based) - Support while looking for work
Class 1 National Insurance: Employees (2025/26)
If you're employed, you pay Class 1 National Insurance. Your employer deducts this automatically from your salary through the PAYE (Pay As You Earn) system, alongside income tax.
Class 1 NI Rates and Thresholds
| Annual Earnings | Weekly Earnings | NI Rate | Annual NI (at top of band) |
|---|---|---|---|
| Up to £12,570 | Up to £242 | 0% | £0 |
| £12,571 to £50,270 | £243 to £967 | 12% | £4,524 |
| Above £50,270 | Above £967 | 2% | Unlimited |
Understanding the Thresholds
Primary Threshold (£12,570): You start paying National Insurance once your earnings exceed this amount. Notably, this is aligned with the income tax personal allowance, so you typically start paying both taxes at the same income level.
Upper Earnings Limit (£50,270): Above this threshold, the NI rate drops dramatically from 12% to just 2%. This is a key difference from income tax, which increases at higher income levels.
Employer Contributions
In addition to your contributions, your employer also pays National Insurance on your behalf at a rate of 13.8% on earnings above £9,100 annually (£175 per week). This is known as Class 1 Secondary contributions and doesn't appear on your payslip because you don't pay it directly.
Class 2 National Insurance: Self-Employed (2025/26)
If you're self-employed, you pay Class 2 National Insurance contributions if your profits are £12,570 or more per year.
Class 2 NI Details
- Rate: £3.45 per week (£179.40 per year)
- Threshold: Only payable if profits exceed £12,570 annually
- Payment method: Paid through Self Assessment along with your income tax and Class 4 NI
- Benefit: Ensures you maintain qualifying years for State Pension and other benefits
Class 2 contributions are relatively affordable but critically important. They ensure self-employed individuals build entitlement to the State Pension and other contributory benefits, just like employees do through Class 1 contributions.
Small Earnings Exception
If your self-employed profits are below £12,570, you don't have to pay Class 2 NI. However, you can choose to pay it voluntarily to maintain your National Insurance record and protect your State Pension entitlement. This can be particularly important if you have gaps in your contribution history.
Class 4 National Insurance: Self-Employed Profits (2025/26)
In addition to Class 2 NI, self-employed individuals also pay Class 4 National Insurance on their profits. This is profit-based rather than a flat rate.
Class 4 NI Rates and Thresholds
| Annual Profits | NI Rate |
|---|---|
| Up to £12,570 | 0% |
| £12,571 to £50,270 | 9% |
| Above £50,270 | 2% |
Class 4 contributions are paid through Self Assessment alongside your income tax bill. Unlike Class 2 contributions, Class 4 NI does not build benefit entitlement - it's purely a tax on profits.
How National Insurance Affects Your State Pension
One of the most important reasons to understand National Insurance is its direct impact on your State Pension entitlement.
Qualifying Years
The UK State Pension system is based on "qualifying years" - years in which you've paid or been credited with sufficient National Insurance contributions.
State Pension Requirements (2025/26)
- Minimum qualifying years: 10 years to receive any State Pension
- Full State Pension: 35 qualifying years needed
- Current full State Pension: £203.85 per week (£10,600.20 per year)
- Payment calculation: With fewer than 35 years, you receive a proportional amount
Example: Partial State Pension Entitlement
Scenario: You have 25 qualifying years of NI contributions.
Calculation:
- Full State Pension (35 years) = £203.85 per week
- Your entitlement = (25 ÷ 35) × £203.85 = £145.61 per week
- Annual amount = £7,571.72 per year
Shortfall: You would receive £3,028.48 less per year than the full State Pension.
National Insurance Credits
You can receive National Insurance credits without paying contributions in certain situations:
- Claiming certain benefits (Jobseeker's Allowance, Universal Credit, etc.)
- Caring for someone full-time (Carer's Credit)
- Receiving Child Benefit for children under 12
- Jury service
- Statutory Maternity, Paternity, or Adoption Pay
These credits ensure you continue building State Pension entitlement even when you're not earning or paying NI directly.
National Insurance vs Income Tax: Key Differences
Many people confuse National Insurance with income tax, but they're fundamentally different:
| Feature | National Insurance | Income Tax |
|---|---|---|
| Purpose | Funds state benefits and pensions | Funds general government spending |
| Upper Limit | Rate decreases to 2% above £50,270 | Rate increases to 40% at £50,271 |
| Applies To | Only earned income (salary, wages, profits) | All income (salary, pensions, investments, rental income) |
| Age Limit | Stops at State Pension age | No age limit |
| Benefits | Builds entitlement to state benefits | No direct personal benefit |
Practical Examples: How Much National Insurance Will You Pay?
Let's look at real-world examples to understand how National Insurance works at different income levels.
Example 1: Salary of £25,000
Gross Salary: £25,000 per year
National Insurance Calculation:
- Earnings below threshold (£12,570): 0% = £0
- Earnings in 12% band (£12,571 to £25,000 = £12,430): 12% = £1,491.60
- Total Annual NI: £1,491.60
- Monthly NI: £124.30
- Effective NI rate: 5.97% of gross salary
Example 2: Salary of £40,000
Gross Salary: £40,000 per year
National Insurance Calculation:
- Earnings below threshold (£12,570): 0% = £0
- Earnings in 12% band (£12,571 to £40,000 = £27,430): 12% = £3,291.60
- Total Annual NI: £3,291.60
- Monthly NI: £274.30
- Effective NI rate: 8.23% of gross salary
Example 3: Salary of £60,000
Gross Salary: £60,000 per year
National Insurance Calculation:
- Earnings below threshold (£12,570): 0% = £0
- Earnings in 12% band (£12,571 to £50,270 = £37,700): 12% = £4,524.00
- Earnings in 2% band (£50,271 to £60,000 = £9,730): 2% = £194.60
- Total Annual NI: £4,718.60
- Monthly NI: £393.22
- Effective NI rate: 7.86% of gross salary
Example 4: Self-Employed Profits of £35,000
Self-Employed Profits: £35,000 per year
National Insurance Calculation:
Class 2 NI:
- £3.45 per week × 52 weeks = £179.40
Class 4 NI:
- Profits below threshold (£12,570): 0% = £0
- Profits in 9% band (£12,571 to £35,000 = £22,430): 9% = £2,018.70
Total Annual NI: £2,198.10 (Class 2 + Class 4)
Effective NI rate: 6.28% of profits
Note: This is lower than an employee earning £35,000 would pay (£2,691.60)
How to Check Your National Insurance Record
It's important to regularly check your National Insurance record to ensure you're on track for your State Pension. You can do this through your online Government Gateway account at www.gov.uk/check-national-insurance-record.
Your NI record shows:
- How many qualifying years you have
- Your State Pension forecast
- Any gaps in your contribution history
- Whether you can pay voluntary contributions to fill gaps
Voluntary National Insurance Contributions
If you have gaps in your National Insurance record, you can pay voluntary contributions to fill them. This is particularly relevant if:
- You've lived or worked abroad
- You've had periods of low earnings or unemployment
- You've taken time off to care for family members
- You're approaching State Pension age and don't have 35 qualifying years
The cost of voluntary Class 3 contributions is £17.45 per week (£907.40 per year) in 2025/26. Before paying voluntary contributions, use the State Pension forecast service to check whether it would increase your pension - sometimes NI credits may have already filled the gaps.
Calculate Your National Insurance and Take-Home Pay
Use Our Free UK Calculators
Want to know exactly how much National Insurance you'll pay and what your take-home pay will be? Use our free calculators:
Income Tax Calculator Salary CalculatorOur calculators use the latest 2025/26 HMRC rates and include National Insurance, income tax, student loan repayments, and pension contributions. Get accurate results in seconds.
Recent Changes and Future Outlook
National Insurance rates have undergone significant changes in recent years:
- 2022: Temporary 1.25% increase introduced (April 2022)
- 2022: 1.25% increase reversed (November 2022)
- 2023: No changes to main rates
- 2025/26: Rates reduced from previous years (Class 1 from 13.25% to 12%, Class 4 from 10.25% to 9%)
The government has indicated that National Insurance and income tax thresholds will remain frozen until April 2028, which means more people will pay these taxes as wages increase (fiscal drag).
Key Takeaways
- National Insurance is not just a tax - it builds your entitlement to state benefits, particularly your State Pension
- Employees pay Class 1 NI at 12% (£12,570-£50,270) and 2% (above £50,270)
- Self-employed pay Class 2 (£3.45/week) and Class 4 NI (9% then 2%)
- You need 35 qualifying years for a full State Pension (£10,600.20/year in 2025/26)
- NI stops at State Pension age but income tax continues
- Check your NI record regularly and consider voluntary contributions if you have gaps
- NI applies only to earned income, unlike income tax which applies to all income
Conclusion
Understanding National Insurance is essential for financial planning in the UK. While it may seem like just another tax deduction on your payslip, National Insurance contributions directly affect your entitlement to crucial state benefits, most importantly your State Pension.
Whether you're employed, self-employed, or have a mixture of income sources, keeping track of your National Insurance record and ensuring you have sufficient qualifying years can make a significant difference to your retirement income. With the full State Pension worth over £10,600 per year, each qualifying year of NI contributions is worth approximately £303 annually in retirement.
Use our UK Salary Calculator and Income Tax Calculator to see exactly how National Insurance affects your take-home pay, and regularly check your National Insurance record on the government website to ensure you're on track for the retirement you deserve.