National Insurance Explained UK — What You Pay and Why

National Insurance is separate from Income Tax but just as important. Here’s everything you need to know.

What Is National Insurance?

The Basics

Feature	Details
What it is	A tax on earnings
What it funds	State Pension, NHS, benefits
Who pays	Employees, employers, self-employed
Builds	Entitlement to State Pension and benefits
Stops	At State Pension age

Difference from Income Tax

Feature	Income Tax	National Insurance
What it funds	General government spending	Specific benefits
Builds entitlement	No	Yes (pension, benefits)
Stops at pension age	No	Yes
Rate structure	Progressive bands	Lower/upper earnings limits

NI Rates (2024-25)

Employees (Class 1)

Earnings	Rate
Below £242/week (£12,570/year)	0%
£242-£967/week (£12,570-£50,270/year)	8%
Above £967/week (£50,270/year)	2%

Employers (Class 1)

Earnings	Rate
Below £175/week (£9,100/year)	0%
Above £175/week	13.8%

Self-Employed

Type	Rate
Class 2	£3.45/week (if profit over £12,570)
Class 4 (£12,570-£50,270)	6%
Class 4 (above £50,270)	2%

Example Calculations

Employee Earning £30,000

Component	Calculation	Amount
Below threshold	£12,570 × 0%	£0
Main rate	£17,430 × 8%	£1,394
Total NI	—	£1,394/year

Employee Earning £60,000

Component	Calculation	Amount
Below threshold	£12,570 × 0%	£0
Main rate	£37,700 × 8%	£3,016
Upper rate	£9,730 × 2%	£195
Total NI	—	£3,211/year

Self-Employed Earning £40,000

Type	Calculation	Amount
Class 2	52 × £3.45	£179
Class 4 (main)	£27,430 × 6%	£1,646
Total NI	—	£1,825/year

NI Classes Explained

Summary of Classes

Class	Who Pays	Purpose
Class 1	Employees	Builds full entitlement
Class 2	Self-employed	Builds entitlement
Class 3	Voluntary	Fill gaps for State Pension
Class 4	Self-employed	Tax on profits

Class 1 (Employees)

Feature	Details
Deducted	From wages automatically
Employer pays	Additional amount
Builds	State Pension, JSA, ESA, Maternity

Class 2 (Self-Employed)

Feature	Details
Amount	£3.45/week (flat rate)
If profit below £12,570	Not required (but can pay voluntarily)
Builds	State Pension, Maternity, Bereavement

Class 4 (Self-Employed)

Feature	Details
On profits	6% main rate, 2% upper
Doesn’t build	Entitlement (just a tax)
Paid via	Self Assessment

Class 3 (Voluntary)

Feature	Details
Amount	£17.45/week (2024-25)
Purpose	Fill gaps in record
Builds	State Pension only
When to pay	If record has gaps

NI and State Pension

Qualifying Years

Requirement	Details
Full State Pension	35 qualifying years
Minimum State Pension	10 qualifying years
Qualifying year	Earn above £6,396 or pay voluntarily

Checking Your Record

How	Details
Online	gov.uk “Check your State Pension”
See	Years contributed
Forecast	Future pension amount
Gaps	Years missing

Filling Gaps

Option	Details
Class 3 voluntary	£17.45/week
Deadline	Usually 6 years (check for extensions)
NI Credits	If eligible (caring, unemployment)
Worth it?	Often yes — increases pension significantly

NI Credits

Free Credits (No Payment Needed)

Situation	Credit Received
Claiming Jobseeker’s Allowance	Yes
Claiming ESA	Yes
Child Benefit (child under 12)	Yes
Caring (20+ hours/week)	Yes
Foster caring	Yes
Jury service	Yes

Example: Child Benefit

Feature	Details
If you claim Child Benefit	Get NI credit automatically
If child under 12	Years count toward pension
If not working	Still builds record
If earning below threshold	Credit tops it up

When NI Stops

State Pension Age

Feature	Details
When you reach	State Pension age
Employee NI	Stops
Employer NI	Also stops
Income Tax	Continues
Working past pension age	More tax-efficient

Benefits of Working Past Pension Age

Element	Under Pension Age	Over Pension Age
Income Tax	Normal rates	Normal rates
Employee NI	8%/2%	0%
Take home	Lower	Higher

Salary Sacrifice and NI

How It Saves NI

Situation	What Happens
Normal contribution	NI paid, then pension contribution
Salary sacrifice	Salary reduced, no NI on that portion
You save	8% NI on contribution amount
Employer saves	13.8% NI (may share with you)

Example

£500/month Pension Contribution	Normal	Salary Sacrifice
Your gross salary	£3,000	£2,500
Pension contribution	£500	£500 (via sacrifice)
NI (employee 8%)	£240	£200
NI saving	—	£40/month

Summary: NI Key Points

Rates to Remember (2024-25)

Type	Rate
Employees (£12,570-£50,270)	8%
Employees (above £50,270)	2%
Self-employed Class 4 (main)	6%
Self-employed Class 4 (upper)	2%
Class 2 (flat rate)	£3.45/week
Class 3 (voluntary)	£17.45/week

Key Actions

Action	Why
Check State Pension forecast	Know what you’ll get
Check for gaps	May need to fill
Consider voluntary contributions	If gaps affect pension
Claim Child Benefit	Even if repaid (for NI credit)
Consider salary sacrifice	Save NI

Who Gets NI Credits

Situation	Credit
Child Benefit claimant (child under 12)	✓
Jobseeker’s Allowance	✓
ESA	✓
Carer’s Allowance	✓
Caring 20+ hours	✓
Grandparent childcare transfer	✓

National Insurance isn’t just a tax — it builds your entitlement to State Pension and benefits. Check your record and fill gaps if needed.