National Insurance has been around since 1911 and still confuses most people who pay it. It looks like a second income tax. It’s calculated differently from income tax. It helps fund the State Pension and certain contributory benefits, but the link between what you personally pay in and what you later receive is limited.
For 2026/27, the rates that matter are settled. Employers pay 15% above £5,000. Employees pay 8% above £12,570. The self-employed pay 6% above the same threshold. The Employment Allowance sits at £10,500, taking some of the sting out of payroll for many small businesses.
This guide covers what NI is, who pays it, how much you’ll pay this year, and what it actually buys you.
What National Insurance Is
National Insurance is a tax on earnings. Despite the “insurance” in the name, most NI receipts flow into the National Insurance Fund, with an NHS allocation taken first. The Fund mainly pays the State Pension and certain contributory benefits.
A few features make NI different from income tax:
- It only applies to earnings from work: Employment income and self-employment profits. Dividends, rental income, investment returns and pensions aren’t subject to NI.
- It stops at State Pension age: Once you reach State Pension age, you stop paying NI on earnings as an employee or self-employed person. The age is currently 66, rising to 67 in stages between May 2026 and April 2028.
- It’s calculated per pay period for employees: Weekly or monthly, not annually like income tax. Directors are the main exception – their NI is calculated cumulatively over the tax year.
The system uses different “classes” of contribution depending on who’s paying. Class 1 covers employees and employers. Class 2 and Class 4 cover the self-employed. Class 3 is voluntary and fills gaps in your record.
Employee NI in 2026/27
If you’re an employee, your NI is deducted from your salary through PAYE before it reaches your bank account. The thresholds and rates for 2026/27 are:
| Weekly earnings | Annual equivalent | Employee NI rate |
|---|---|---|
| Up to £242 | Up to £12,570 | 0% |
| £242.01 to £967 | £12,571 to £50,270 | 8% |
| Above £967 | Above £50,270 | 2% |
Employees don’t pay NI below the Primary Threshold (£242 a week or £12,570 a year), but earnings between the Lower Earnings Limit (£129 a week or £6,708 a year) and the Primary Threshold can still build NI entitlement towards the State Pension.
The 2% rate above £50,270 sometimes catches people out. NI doesn’t just stop at the higher rate income tax threshold – it carries on, just at a lower rate. For someone on £80,000, that extra 2% on the £29,730 above the Upper Earnings Limit works out at £595 a year on top of their basic NI.
Two things worth knowing:
- The Personal Allowance and the Primary Threshold are both £12,570: Helpful alignment, but not permanent. The thresholds can move independently in future Budgets.
- You stop paying employee NI at State Pension age: Your employer still has to pay employer NI on your salary, but the deductions from your pay stop. If they don’t, raise it with payroll – overpaid NI can be reclaimed.
You can check your NI record on GOV.UK to see exactly what’s been credited to you over your working life.
Self-Employed NI in 2026/27
The system for the self-employed changed in April 2024 and is worth re-checking if you haven’t looked at it for a while.
Class 2 used to be a flat weekly contribution. It’s been abolished as a compulsory contribution. If your profits are above the Small Profits Threshold of £7,105 for 2026/27, you automatically get a qualifying year for the State Pension without paying Class 2 at all.
If your profits are below £7,105, you can pay voluntary Class 2 contributions at £3.65 a week to protect your State Pension entitlement and access to certain contributory benefits. From 6 April 2026, voluntary Class 2 is generally no longer available for periods spent living or working outside the UK, with limited exceptions such as certain people covered by an international social security agreement and volunteer development workers.
Class 4 is calculated on annual profits when you file your Self Assessment tax return:
| Annual profits | Class 4 NI rate |
|---|---|
| Up to £12,570 | 0% |
| £12,571 to £50,270 | 6% |
| Above £50,270 | 2% |
The 6% rate is lower than the equivalent 8% employee rate. On £40,000 of earnings, the gap is real:
- An employee pays: £2,194 in NI (8% on £27,430)
- A self-employed person pays: £1,646 in Class 4 (6% on £27,430)
That £548 gap is partly there to recognise that the self-employed don’t get sick pay, paid holiday or employer pension contributions. The employer also pays its own NI on top of the employee’s wages, which doesn’t show on the payslip but is still a cost of employment.
Employer NI in 2026/27
This is the side of the system that changed most recently and most painfully for businesses. From April 2025, employer NI rose from 13.8% to 15%, and the Secondary Threshold dropped from £9,100 to £5,000. Both changes carry through to 2026/27. The table below shows the standard employer rate for category A employees:
| Weekly earnings | Annual equivalent | Employer NI rate |
|---|---|---|
| Up to £96 | Up to £5,000 | 0% |
| Above £96 | Above £5,000 | 15% |
Special zero-rate bands apply for some categories, including employees under 21, apprentices under 25, armed forces veterans, and freeport or investment zone employees. Each has its own threshold above which the 15% rate kicks in.
The impact on payroll has been significant. For a full-time employee on £25,000, employer NI rose from around £2,191 a year under the old rules to £3,000 under the new rates – an extra £809 per employee. Industries with large lower-wage workforces felt the change most.
The cushion is the Employment Allowance. Eligible employers can reduce their employer NI bill by up to £10,500 a year, claimed through payroll software via an Employer Payment Summary. For many small businesses, that allowance wipes out employer NI entirely for the year.
A company can’t claim the Employment Allowance if its only employee earning above the Secondary Threshold is also its only director – which excludes most sole-director companies. The setup that does qualify is a husband-and-wife company where both directors are paid above £5,000. Our optimal director’s salary guide covers this in detail.
Other employer responsibilities worth being aware of:
- Class 1A on benefits in kind: Employer NI of 15% on most taxable benefits, declared annually on P11D and P11D(b) forms.
- Class 1B on PAYE Settlement Agreements: Where employers settle the tax on minor benefits for employees, 15% NI applies.
- Reporting through RTI: Each payroll run reports earnings and contributions to HMRC in real time.
Our payroll service covers the wider compliance picture, including SSP, statutory pay rates and pensions auto-enrolment.
What Your NI Record Actually Buys You
The link between NI and benefits has weakened over the years, but your record still matters for several state entitlements. The biggest is the State Pension.
A few key points:
- Usually 35 qualifying years for the full new State Pension: This holds if your NI record starts after April 2016. Pre-2016 records, especially for people who were contracted out, can need more than 35 to reach the full amount.
- 10 qualifying years minimum: Below 10 years, you get no State Pension at all under the new system.
- Other contributory benefits: New Style Jobseeker’s Allowance, New Style Employment and Support Allowance, Maternity Allowance and Bereavement Support Payment all depend on your NI record, though the rules vary.
If your record has gaps – common for people who took career breaks, lived abroad, or had years of low self-employed profits – you can fill them with voluntary Class 3 contributions. The deadline for filling gaps going back to 2006 was extended to 5 April 2025 and has now passed. From 6 April 2025, you can normally only go back six tax years.
Whether topping up is worth it depends on how many years you have, your age, and how long you expect to live in retirement.
A single qualifying year can increase your State Pension by about £6.89 a week, or roughly £358 a year at 2026/27 rates, although the exact effect depends on your record. On those numbers, the payback on a voluntary contribution is often within three years.
How to Reduce Your NI Bill
NI isn’t easy to avoid, but a few legitimate routes can reduce what you pay:
- Salary sacrifice into a pension: Reduces gross salary before NI is calculated, saving both employee NI (8%) and employer NI (15%) on the sacrificed amount. From April 2029, only the first £2,000 of pension salary sacrifice each year will be NI-exempt.
- Trading through a limited company: Dividends don’t attract NI. Most owner-directors take a small salary plus dividends to keep the combined tax and NI bill down.
- Watching your timing if self-employed: Class 4 NI is based on annual profits, so the timing of invoices and allowable expenses across tax years can matter.
- Checking your tax code and NI category letter: Mistakes happen. Wrong codes are one of the more common reasons people overpay NI without realising.
How Double Point Can Help
National Insurance isn’t optional for most working people, but the structure around it offers real planning opportunities. Whether you’re an employee thinking about salary sacrifice, a sole trader weighing up voluntary Class 2 contributions, or an employer trying to manage rising payroll costs, the small decisions add up.
At Double Point, our chartered accountants help individuals and businesses across the UK manage their National Insurance position, from tax planning for owner-directors to payroll services for growing businesses.
Book a free consultation and we’ll review your position for 2026/27 and find the simplest ways to manage your NI bill.