What Is National Insurance?

Key facts

National Insurance contributions (NICs) are separate from Income Tax and are calculated differently.
Most employees pay Class 1 NI at 8% on earnings between £242 and £967 per week (2025/26).
Self-employed people pay Class 2 (flat rate) and Class 4 (percentage of profits) NI.
Your NI record determines your entitlement to the State Pension and contributory benefits.

How National Insurance Funds UK Benefits and Pensions

National Insurance (NI) is a system of compulsory contributions paid by workers and employers in the United Kingdom. It was introduced in 1911 and has been a cornerstone of the UK’s welfare system ever since.^[1]

Unlike Income Tax, which funds general government spending, National Insurance contributions are specifically linked to your entitlement to certain state benefits. The more qualifying years of NI you accumulate, the higher your State Pension will be.

What National Insurance Funds

NI contributions are paid into the National Insurance Fund, which finances:^[1]

The State Pension — the single largest item funded by NI
Contributory Jobseeker’s Allowance (new-style JSA)
Employment and Support Allowance (contributory ESA)
Maternity Allowance
Bereavement benefits
Part of the NHS budget — a portion of employer NI goes to the NHS

Important: NI does not work like a personal savings account. Your contributions do not sit in a ring-fenced fund waiting for you. Today’s workers pay for today’s pensioners, and your NI record determines your future entitlement.

Who Pays National Insurance?

You pay NI if you are:^[2]

An employee aged 16 or over, earning above the Primary Threshold
Self-employed with profits above the Small Profits Threshold (for Class 2) or Lower Profits Limit (for Class 4)
An employer paying staff above the Secondary Threshold

You stop paying employee or self-employed NI when you reach State Pension age. Employers, however, continue to pay employer NI on the earnings of employees who have passed State Pension age.^[3]

National Insurance vs Income Tax

NI and Income Tax are often confused because both are deducted from earnings, but they work very differently:

Feature	Income Tax	National Insurance
Calculated on	Total taxable income from all sources	Earnings from each employment separately; self-employment profits
Tax-free threshold	£12,570 Personal Allowance	Primary Threshold: £242/week (employees); Lower Profits Limit: £12,570 (self-employed)
Main rate	20% (basic rate)	8% employee / 6% self-employed Class 4
Higher rate	40% above £50,270	2% above UEL / Upper Profits Limit
Affected by tax codes?	Yes	No — NI uses fixed thresholds
Stops at State Pension age?	No	Yes (employee and self-employed)
Builds benefit entitlement?	No	Yes — State Pension, JSA, ESA, Maternity Allowance

Current NI Rates at a Glance (2025/26)

Who Pays	Class	Rate
Employees	Class 1 (primary)	8% between PT and UEL; 2% above UEL
Employers	Class 1 (secondary)	15% above the Secondary Threshold (£5,000/year)
Self-employed	Class 2	£3.45 per week (flat rate)
Self-employed	Class 4	6% on profits £12,570–£50,270; 2% above
Voluntary	Class 3	£17.75 per week (2025/26)

The NI Classes: A Brief Summary

There are six classes of National Insurance, each applying to different groups:^[2]

Class 1 — paid by employees and their employers on earnings
Class 1A — paid by employers on benefits in kind (company cars, private medical insurance, etc.)
Class 1B — paid by employers on items in a PAYE Settlement Agreement
Class 2 — flat-rate weekly payment by the self-employed
Class 3 — voluntary contributions to fill gaps in your NI record
Class 4 — paid by the self-employed on profits, through Self Assessment

Tip: Only Class 1 (employee), Class 2, and Class 3 contributions build entitlement to the State Pension and contributory benefits. Class 4 NI does not provide any benefit entitlement — it is effectively a tax on self-employment profits.

The Lower Earnings Limit

There is an important band of earnings between the Lower Earnings Limit (£125 per week in 2025/26) and the Primary Threshold (£242 per week). If you earn within this band, you are treated as having paid NI for that week — even though no actual deduction is made from your pay. This protects your NI record without costing you anything.^[2]

Checking Your NI Record

You can check your National Insurance record online to see how many qualifying years you have, whether there are any gaps, and what your State Pension forecast is. You will need a Government Gateway account or GOV.UK Verify.^[4]

Visit gov.uk/check-national-insurance-record to check your record.

Frequently Asked Questions

What does National Insurance pay for?

National Insurance funds the State Pension, contributory benefits such as Jobseeker’s Allowance and Employment and Support Allowance, bereavement benefits, and part of the NHS budget. It does not go into a personal pot — it is pooled with other government revenue.

Is National Insurance the same as Income Tax?

No. Although both are deducted from earnings, they are separate taxes with different rates, thresholds, and rules. Income Tax has a personal allowance and multiple bands, while NI uses its own thresholds (Primary Threshold, Upper Earnings Limit) and does not reduce based on tax codes or allowances.

At what age do I stop paying National Insurance?

You stop paying National Insurance when you reach State Pension age. For employees, your employer also stops paying employer NICs on your earnings once you reach State Pension age and use NI category letter C.

Do I have to pay National Insurance if I earn very little?

If your earnings are below the Primary Threshold (£242 per week for employees in 2025/26), you do not pay employee NI. However, earnings between the Lower Earnings Limit (£125 per week) and the Primary Threshold still count towards your NI record without you actually paying anything.

Sources

National Insurance: introduction — GOV.UK
National Insurance rates and categories — GOV.UK
National Insurance and tax after State Pension age — GOV.UK
Check your National Insurance record — GOV.UK