National Insurance explained
National Insurance funds the State Pension and certain benefits. What you pay depends on whether you're employed or self-employed. This guide covers the classes, rates and thresholds for 2025/26.
Class 1 National Insurance
Employees pay Class 1 NI through PAYE: 8% on earnings between the primary threshold (£12,570) and the upper earnings limit (£50,270), then 2% on everything above. Your employer also pays employer's NI on top (which doesn't come out of your pay but is a real cost of employing you). NI is usually calculated each pay period rather than annually, so an irregular month can look different.
Class 4 (and Class 2)
Sole traders pay Class 4 NI on profit: 6% between £12,570 and £50,270, then 2% above, collected through Self Assessment. Class 2 NI is now voluntary for most, but paying it (a small weekly amount) can protect your State Pension and benefit entitlement if your profits are low — often worth doing.
What NI buys you
Unlike Income Tax, NI builds entitlement: qualifying years count towards your State Pension (you need about 35 for the full amount) and some contributory benefits. If you have gaps — from time abroad, low earnings or caring — you can sometimes fill them with voluntary contributions, which can be excellent value for your future pension.
Check your NI record
Common mistakes
- Thinking NI is just another tax. It builds State Pension and benefit entitlement — qualifying years matter for retirement.
- Ignoring voluntary Class 2. Low-profit sole traders can lose pension years by not paying the small voluntary contribution.
- Expecting a bonus to be taxed the same as salary. NI is period-based, so a bonus month can carry more NI than a steady salary.
- Forgetting gaps can be filled. Past gaps can sometimes be paid up — check before the deadlines.