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.