NI and Tax Codes

Key facts

NI has its own fixed thresholds (Primary Threshold, Upper Earnings Limit) — it ignores your tax code.
Changing your tax code (e.g. from 1257L to BR) does not change your NI deduction.
NI is calculated per pay period; Income Tax is calculated cumulatively across the year.
There is no NI equivalent of the Personal Allowance — the Primary Threshold serves a similar but distinct function.

NI and Tax Codes Are Completely Separate

One of the most common misunderstandings about UK tax is that National Insurance and Income Tax work the same way. They do not. While both are deducted from your pay, they use entirely different systems:^[1]

Income Tax uses your personal tax code (e.g. 1257L), which can be adjusted by HMRC
National Insurance uses fixed thresholds and your NI category letter — no tax code involved

How Tax Codes Work (Brief Recap)

Your tax code tells your employer how much Income Tax to deduct. The most common code, 1257L, means you have a £12,570 tax-free Personal Allowance. HMRC can change your tax code to:^[2]

Collect underpaid tax from a previous year
Account for taxable benefits in kind (company car, medical insurance, etc.)
Reflect Marriage Allowance transfers
Reduce your allowance if you earn over £100,000
Adjust for other income sources not taxed through PAYE

How NI Thresholds Work (The Difference)

National Insurance does not use a tax code at all. Instead, it uses fixed thresholds that are the same for everyone in the same NI category:^[1]

NI Threshold	Weekly	Monthly	Annual Equivalent
Lower Earnings Limit (LEL)	£125	£543	£6,500
Primary Threshold (PT)	£242	£1,048	£12,570
Upper Earnings Limit (UEL)	£967	£4,189	£50,270

These thresholds:

Cannot be adjusted by HMRC for individual circumstances
Do not change based on benefits in kind, Marriage Allowance, or underpayments
Are the same for every employee in the same NI category

Side-by-Side Comparison

Feature	Income Tax	National Insurance
Controlled by	Tax code (set by HMRC)	NI category letter + fixed thresholds
Personal allowance	£12,570 (can vary)	PT £12,570 (fixed, cannot vary)
Calculation method	Cumulative (year to date)	Per pay period
Can HMRC adjust it?	Yes, by changing your tax code	No — thresholds are set by legislation
Benefits in kind	Coded into tax code to collect tax	Not collected through NI (employer pays Class 1A separately)
Underpaid tax	Can be collected via tax code	Cannot be collected this way
Marriage Allowance	Can increase your Personal Allowance	No effect on NI

Common Scenarios Explained

Your tax code changes but NI stays the same

If HMRC changes your tax code (for example, from 1257L to 1100L to collect underpaid tax), your Income Tax deduction will change but your NI deduction will remain exactly the same. The NI system is not aware of your tax code.

You have a company car

The taxable benefit of a company car is coded into your tax code, increasing your Income Tax. However, it does not affect your employee NI. Instead, your employer pays Class 1A NI (15% from April 2025) on the benefit value separately.^[1]

You earn over £100,000

Your Personal Allowance is gradually withdrawn when your income exceeds £100,000 (reduced by £1 for every £2 over £100,000). This creates an effective 60% Income Tax rate between £100,000 and £125,140. However, your NI thresholds are not affected — the NI rates remain 8% and 2% regardless of your total income.

Salary Sacrifice — The NI Connection

Salary sacrifice is one of the few ways to reduce your NI bill. In a salary sacrifice arrangement, you agree to a lower contractual salary in exchange for a benefit (typically employer pension contributions). Because your contractual salary is lower:^[3]

Your NI-able earnings are reduced
You pay less employee NI
Your employer also pays less employer NI

This is different from a standard pension contribution, where you get Income Tax relief but no NI relief.

Tip: Ask your employer if they offer pension contributions through salary sacrifice. The NI saving can be worth several hundred pounds per year for a typical employee.

Frequently Asked Questions

Does my tax code affect my National Insurance?

No. Your tax code only affects your Income Tax deduction. National Insurance is calculated using fixed thresholds (Primary Threshold, Upper Earnings Limit) that are the same for everyone in the same NI category. A change to your tax code will not change your NI.

Why did my tax go up but my NI stayed the same?

This typically happens when HMRC adjusts your tax code — for example, to collect underpaid tax from a previous year, or because you have a taxable benefit in kind. These tax code changes only affect Income Tax; they do not affect NI at all.

Is the NI threshold the same as the Personal Allowance?

The numbers happen to be similar (both are £12,570 annually for 2025/26), but they are completely separate. The Personal Allowance can be reduced (e.g. if you earn over £100,000) or increased (e.g. by transferring Marriage Allowance). The NI Primary Threshold is fixed and cannot be adjusted.

Can I get NI relief on pension contributions?

Not through your tax code, but you can save NI through salary sacrifice. If your employer offers a salary sacrifice pension scheme, your gross pay is reduced before NI is calculated, which reduces your NI bill. With a regular (net pay or relief at source) pension, you only get Income Tax relief, not NI relief.

Sources

National Insurance rates and categories — GOV.UK
Tax codes — GOV.UK
Understanding your payslip — GOV.UK