National Insurance Explained: Who Pays, How Much & What You Get
National Insurance is the UK's second-largest tax — yet many workers are unsure exactly what it funds or how it builds their State Pension entitlement. This guide covers all the rates, thresholds and rules for 2025-26.
What Is National Insurance and What Does It Fund?
National Insurance (NI) is a payroll tax collected by HMRC alongside income tax. It was originally designed as a contributory insurance scheme — you pay in, and in return you are entitled to certain state benefits. The main benefits funded by NI are:
- The State Pension (the biggest single beneficiary)
- Contributory Jobseeker's Allowance and Employment and Support Allowance
- Maternity Allowance
- Bereavement benefits
- A proportion of NHS funding
Unlike income tax, NI is only charged on earned income (wages and self-employment profits). Investment income, savings interest, rental income and pension income do not attract NI — which is a meaningful advantage for income above State Pension age and for those with unearned income.
Employee NI: Class 1 Rates for 2025-26
If you are employed, you pay Class 1 NI contributions. The rates for 2025-26 are:
- Below £12,570 per year (the Primary Threshold): 0% — no NI payable
- £12,570 to £50,270 per year: 8% on earnings in this band
- Above £50,270 per year (the Upper Earnings Limit): 2% on earnings above this threshold
Example: on a £40,000 salary, your NI is 8% of (£40,000 − £12,570) = 8% of £27,430 = £2,194 per year, or approximately £183 per month.
Employer NI: Class 1 Employers' Contributions
Employers pay a separate, additional Class 1 NI contribution on top of your salary. From April 2025, the employer rate increased to 15% (up from 13.8%) on earnings above the Secondary Threshold of £9,100 per year per employee. This is a cost you never see on your payslip — but it is a real cost to your employer on every pound of your salary above that threshold.
On a £40,000 salary: employer NI = 15% of (£40,000 − £9,100) = 15% of £30,900 = £4,635 per year. This means the true cost of employing someone on £40,000 is over £44,600 per year to the employer — before pension contributions or other benefits. This is an important context for salary negotiations.
Self-Employed NI: Class 2 and Class 4
Self-employed workers pay two different classes of NI:
Class 2 NI
A flat-rate contribution of £3.45 per week (£179.40 per year) if your taxable profits exceed £12,570. Class 2 contributions are crucial: each year you pay Class 2 counts as a "qualifying year" toward your State Pension. Despite the small amount, not paying when eligible means losing pension entitlement — which is worth far more than £179.40 in the long run.
Class 4 NI
Earnings-related contributions on self-employment profits: 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Note that Class 4 is 2 percentage points lower than the employee Class 1 rate in the main band — a meaningful saving for the self-employed.
NI Rates Comparison Table (2025-26)
| Type | Who Pays | Rate | On Income Between |
|---|---|---|---|
| Class 1 (employee) | Employee | 8% | £12,570–£50,270 |
| Class 1 (employee) | Employee | 2% | Above £50,270 |
| Class 1 (employer) | Employer | 15% | Above £9,100 |
| Class 2 | Self-employed | £3.45/week | If profit above £12,570 |
| Class 4 | Self-employed | 6% | £12,570–£50,270 |
| Class 4 | Self-employed | 2% | Above £50,270 |
| Class 3 (voluntary) | Anyone with gaps | £17.45/week | To fill qualifying year gaps |
How NI Builds Your State Pension
Every tax year you pay NI (or receive NI credits) counts as a "qualifying year." To receive the full new State Pension of £221.20 per week in 2025-26 (£11,502 per year), you need 35 qualifying years. To receive any State Pension at all, you need a minimum of 10 qualifying years.
If you have fewer than 35 qualifying years, your pension is proportionate: 25 years earns you 25/35 × £221.20 = £158/week. Gaps can occur due to career breaks, studying, or periods abroad. They can be filled with voluntary Class 3 contributions at £17.45 per week in 2025-26 — often an excellent investment given the lifetime pension value.
NI Credits: Qualifying Without Paying
You can build qualifying years without actually paying NI through NI credits. These are awarded automatically when you claim certain benefits or meet specific criteria:
- Claiming Child Benefit for a child under 12 (critical for parents who take career breaks)
- Receiving Universal Credit, Jobseeker's Allowance or Employment and Support Allowance
- Being too ill or disabled to work and claiming certain benefits
- Being a foster carer
- Jury service
If you are the main carer for a child under 12 and your partner claims Child Benefit, the credits go to the person claiming Child Benefit — not to you as the carer. This can result in gaps. You can transfer the credits to yourself by applying to HMRC.
When You Stop Paying NI
Employee and self-employed NI contributions stop when you reach State Pension age, currently 66. If you continue working past 66, income tax still applies but your payslip NI deduction disappears entirely. On a £30,000 salary, this saves approximately £1,394 per year — an effective pay rise simply from reaching pension age.
Frequently Asked Questions
How many NI qualifying years do I need for the full State Pension?
35 qualifying years for the full new State Pension of £221.20/week in 2025-26. You need at least 10 years to receive any State Pension. Gaps can be filled with voluntary Class 3 contributions at £17.45/week.
Do I still pay National Insurance after State Pension age?
No. Employee NI contributions stop at State Pension age (66). You still pay income tax on earnings above your Personal Allowance, but NI is no longer deducted — giving workers who continue past 66 an effective pay rise.
What does National Insurance actually pay for?
Primarily the State Pension, plus contributory benefits such as Jobseeker's Allowance, Employment and Support Allowance, Maternity Allowance, bereavement benefits, and a contribution to NHS funding.