National Insurance (NI) is a mandatory contribution system that funds some of the UK’s most essential state provisions—the State Pension, the National Health Service (NHS), maternity support, and unemployment benefits, among others. Yet for many employees, it remains little more than a line on a payslip.
Understanding how NI works matters both individually and at an organisational level. For employees, it affects State Pension entitlement and access to certain benefits. For employers, it represents a significant payroll cost—one that has increased following April 2025 changes that raised the employer contribution rate to 15% and reduced the Secondary Threshold to £5,000 per year.
This guide covers everything from the basics through to the 2026/27 thresholds, category letters, and contribution rates.
National Insurance vs Income Tax: What Is the Difference?
Both NI and Income Tax are deducted through Pay As You Earn (PAYE), but they operate differently.
Income Tax applies to a broad range of income sources and uses a progressive rate structure—the higher your earnings, the higher the rate applied to each band. National Insurance, by contrast, applies specifically to employment and self-employment income, using fixed thresholds and rates that vary by class and category letter.
The two are calculated and recorded separately, even though both appear on a payslip and are reported to HM Revenue & Customs (HMRC) via the same Full Payment Submission (FPS) under Real Time Information (RTI).
Your National Insurance Number
Every individual in the UK is assigned a unique National Insurance number—a sequence of two letters, six digits, and a final letter. This number links your name to your NI contributions and tax record for life.
You will receive your NI number automatically when you turn 16 or when you establish the right to work in the UK. You will need it when starting a new job, applying for certain benefits, or taking out a student loan.
If you are unsure of your number, it can be found on a payslip, a P60, or any correspondence from HMRC. You can also retrieve your National Insurance number online via GOV.UK.
Who Pays National Insurance and When Does It Stop?
Employees
You are required to pay Class 1 National Insurance if you are aged 16 or over and earn more than £242 per week from a single employment. Contributions stop when you reach State Pension age, even if you remain in work.
Self-Employed Individuals
Self-employed people with annual profits of £12,570 or more pay Class 4 contributions. Class 2 contributions, while no longer mandatory since April 2024, can still be paid voluntarily. Class 4 contributions cease from 6 April following the tax year in which you reach State Pension age.
Employers
Employers pay secondary Class 1 contributions on employee earnings above the Secondary Threshold—currently £96 per week or £5,000 per year in 2026/27. This is separate from the deduction made from the employee’s pay and is an additional cost to the organisation.
What Do National Insurance Contributions Fund?
NI contributions support a broad range of state benefits and services:
- State Pension – Requires 35 qualifying years of contributions or credits for the full new State Pension.
- NHS – Contributes to hospital, GP, and community health services.
- Maternity Allowance – For individuals who do not qualify for Statutory Maternity Pay.
- Jobseeker’s Allowance (JSA) – Financial support for those actively seeking work.
- Employment and Support Allowance (ESA) – For those unable to work due to illness or disability.
- Bereavement Support Payment – For surviving spouses or civil partners.
Gaps in Your National Insurance Record
Gaps in your NI record can occur if you had a period of low earnings, worked or lived abroad, or were unemployed without claiming benefits. The principal consequences are:
- Insufficient qualifying years for the full State Pension.
- Loss of entitlement to certain contributory benefits.
You can check your NI record and State Pension forecast on GOV.UK. If gaps exist, voluntary contributions (Class 3) may be worth considering—particularly if you have fewer than 35 qualifying years and are within a decade of State Pension age.
| Situation | Consider voluntary contributions? |
|---|---|
| Low earnings in a given year | Yes, if a gap was created |
| Lived or worked abroad | Yes, if no UK credits were received |
| Approaching State Pension age with under 35 qualifying years | Yes |
| Receiving benefits with NI credits | Not usually necessary |
| Already have 35 or more qualifying years | No, unless planning early retirement |
The Classes of National Insurance
Each NI class reflects a different employment status and determines who is responsible for paying contributions.
| Class | Who pays |
|---|---|
| Class 1 | Employees earning over £242/week; employers on earnings above the Secondary Threshold |
| Class 1A / 1B | Employers, on employee benefits and expenses (e.g. company cars, private medical insurance) |
| Class 2 | Self-employed individuals—voluntary since April 2024, but may preserve State Pension entitlement |
| Class 3 | Voluntary contributions to fill record gaps |
| Class 4 | Self-employed individuals with annual profits of £12,570 or more |
National Insurance Category Letters
Category letters determine the rate of employee and employer NI contributions that apply to a given worker. Employers assign the correct letter through PAYE and include it in each FPS submission. Assigning an incorrect letter—even unintentionally—can lead to under- or over-deductions that require retrospective correction.
Standard Category Letters
| Letter | Employee group |
|---|---|
| A | All employees not covered by another category |
| B | Married women/widows holding a valid certificate of election for reduced contributions |
| C | Employees over State Pension age |
| H | Apprentices under 25 |
| J | Employees deferring NI due to paying it in another job |
| M | Employees under 21 |
| V | Veterans in their first civilian job after leaving the armed forces |
| X | Employees with no NI liability (e.g. under 16) |
| Z | Employees under 21 deferring NI due to a second employment |
Freeport Category Letters
Employees working in government-designated freeport zones are assigned separate category letters:
| Letter | Employee group |
|---|---|
| F | Standard freeport employees |
| I | Married women/widows in freeports with a reduced-rate certificate |
| L | Freeport employees deferring NI |
| S | Freeport employees over State Pension age |
Investment Zone Category Letters
| Letter | Employee group |
|---|---|
| N | Standard |
| E | Married women/widows entitled to reduced NICs |
| K | Over State Pension age |
| D | Deferring main-rate contributions due to a second employment |
2026/27 National Insurance Thresholds
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Lower Earnings Limit (LEL) | £129 | £559 | £6,708 |
| Primary Threshold (PT) | £242 | £1,048 | £12,570 |
| Secondary Threshold (ST) | £96 | £417 | £5,000 |
| Upper Earnings Limit (UEL) | £967 | £4,189 | £50,270 |
| Upper Secondary Threshold – Under 21 (UST) | £967 | £4,189 | £50,270 |
| Apprentice Upper Secondary Threshold (AUST) | £967 | £4,189 | £50,270 |
| Veterans Upper Secondary Threshold (VUST) | £967 | £4,189 | £50,270 |
| Freeport Upper Secondary Threshold (FUST) | £481 | £2,083 | £25,000 |
| Investment Zone Upper Secondary Threshold (IVUST) | £481 | £2,083 | £25,000 |
Employee Contribution Rates for 2026/27
Employee (primary) contributions are deducted through PAYE at the following rates:
| Category | £129–£242/week | £242.01–£967/week | Over £967/week |
|---|---|---|---|
| A, F, H, M, N, V | 0% | 8% | 2% |
| B, E, I | 0% | 1.85% | 2% |
| D, J, L, Z | 0% | 2% | 2% |
| C, K, S | Nil | Nil | Nil |
Example — Category A employee earning £1,000 in a week:
- £0 on the first £242
- 8% on earnings from £242.01 to £967 = £58.00
- 2% on earnings above £967 = £0.66
- Total employee NI: £58.66
Employer Contribution Rates for 2026/27
Employer (secondary) contributions are paid on top of gross salary and are not deducted from the employee’s pay.
| Category | ST to LEL | LEL to UEL/UST/AUST | FUST to UEL/UST/AUST/VUST | Above UEL/UST/AUST/VUST |
|---|---|---|---|---|
| A, B, C, J | 15% | 15% | 15% | 15% |
| H, M, V, Z | 0% | 0% | 0% | 15% |
| D, E, F, I, K, L, N, S | 0% | 0% | 15% | 15% |
Employers with a high proportion of apprentices (Category H) or under-21 employees (Category M) benefit from a 0% employer rate up to the relevant upper secondary threshold—a meaningful cost consideration in workforce planning.
For detailed guidance on employer rates, refer to HMRC’s employer rates and thresholds page.
For organisations using dedicated payroll software, Cintra’s cloud payroll platform handles category assignment and NI calculations automatically, reducing the scope for manual error.
Ensure Your Payroll Handles National Insurance Correctly
National Insurance touches every employer and employee in the UK. The rules around classes, categories, and thresholds are detailed, and the consequences of getting them wrong—whether through incorrect category letters, missed threshold updates, or miscalculated deductions—can be both costly and time-consuming to resolve.
At Just Payroll Services, we manage NI calculations, category assignments, and HMRC submissions on behalf of organisations across a range of sizes and sectors. Our team stays current with each tax year’s changes so that your payroll does too.
Explore our managed payroll services to understand how we support accurate, compliant payroll, or contact our team to discuss your organisation’s requirements. You can also find out more about the benefits of outsourced payroll and whether it is the right fit for your business.