National Insurance is separate from income tax but often misunderstood. Here’s exactly how much you pay, when you pay it, and what it funds.
National Insurance (NI) is a tax on earnings that funds state benefits including the NHS, state pension, jobseeker’s allowance and maternity pay. It is paid separately from income tax, calculated on your earnings above certain thresholds, and collected by HMRC.
Many people are surprised by how much NI they pay — particularly those who have just started working and assumed income tax was their only deduction. For a basic rate taxpayer, NI adds 8 percentage points to their effective tax rate on top of the 20% income tax rate.
See your exact NI deduction alongside income tax for any salary
National Insurance was originally designed as a contributory system — you pay in during your working life and receive benefits in return. Today it funds:
Unlike income tax which is based on annual income, NI is calculated on a pay period basis for employees — weekly or monthly depending on how you are paid. This means that lump sum payments (like a bonus) can push you into higher NI in a single pay period even if your annual salary wouldn’t otherwise reach that threshold.
If you are employed, you pay Class 1 National Insurance contributions. The rates are:
| Earnings band | Annual threshold | NI rate |
|---|---|---|
| Below primary threshold | Up to £12,570 | 0% |
| Primary threshold to upper earnings limit | £12,571–£50,270 | 8% |
| Above upper earnings limit | Over £50,270 | 2% |
The primary threshold aligns with the personal allowance at £12,570, meaning you start paying NI at the same point you start paying income tax. The upper earnings limit aligns with the higher rate income tax threshold at £50,270, above which NI drops sharply from 8% to 2%.
Your employer also pays National Insurance contributions on your earnings — a cost to them that is separate from your own NI. In 2026/27, employer NI rates are:
| Earnings band | Threshold | Employer NI rate |
|---|---|---|
| Below secondary threshold | Up to £5,000 | 0% |
| Above secondary threshold | Over £5,000 | 15% |
Employer NI at 15% is significantly higher than the employee rate. This is why salary sacrifice schemes are attractive to employers as well as employees — when an employee sacrifices salary for a pension contribution, the employer also saves 15% on that portion of the salary.
If you are self-employed, you pay Class 4 National Insurance on your profits. Class 2 NI was abolished from April 2024.
| Profit band | Class 4 NI rate |
|---|---|
| Up to £12,570 | 0% |
| £12,571–£50,270 | 6% |
| Over £50,270 | 2% |
The Class 4 rate of 6% is lower than the employee rate of 8%, which is one advantage of self-employment. However, self-employed people also do not receive employer NI contributions to their pension, statutory sick pay, or other employment benefits — so the comparison is not straightforward.
Notice how NI barely increases above £50,270 — the 2% rate on earnings above the upper earnings limit adds relatively little. This is why high earners’ effective combined tax rate (income tax plus NI) is lower as a percentage of total income than might be expected.
You stop paying National Insurance at State Pension age — currently 66 for both men and women. After that, even if you continue working, no NI is deducted from your pay (though your employer still pays employer NI on your earnings).
You also stop paying NI if your earnings fall below the primary threshold of £12,570 per year. There is no NI on pension income, investment income, rental income or savings interest — NI applies to earned income only.
The most effective way to reduce NI is salary sacrifice. When you give up salary in exchange for a pension contribution or other benefit, your gross salary falls — meaning you pay NI on a lower amount. At the 8% employee NI rate, every £1,000 of salary sacrifice saves you £80 in NI on top of the income tax saving. Your employer also saves 15% employer NI on the same amount.
If your employer pension scheme uses salary sacrifice, you save NI on contributions. If it uses “relief at source” (where you pay from net pay and the pension provider claims basic rate tax relief), you save income tax but not NI. Salary sacrifice is more efficient — worth checking which method your employer uses.
See exactly how much NI you pay and your full take-home breakdown