National Insurance (NI)

National Insurance is a contribution on earnings that builds entitlement to contributory benefits, principally the new State Pension, and is collected through payroll alongside income tax. Employees pay Class 1 primary contributions. Employers pay Class 1 secondary contributions on top, which never appear as a deduction from your pay but are a real cost of employing you and are the reason a salary sacrifice arrangement can be attractive to both sides.

An employee on the standard category letter A pays 8 per cent of earnings between the Primary Threshold and the Upper Earnings Limit, and 2 per cent on everything above. The annual equivalents for 2026/27 are £12,570 and £50,270, but the calculation is not annual. HMRC publishes monthly thresholds of £1,048 and £4,189 and weekly thresholds of £242 and £967, and payroll works period by period against those. That is why National Insurance does not self-correct the way cumulative income tax does, and why someone paid irregularly can pay more across a year than someone on the same annual salary paid evenly.

Your category letter decides which rates apply. A is the default. C covers employees over State Pension age, who pay no employee contributions at all. H, M and V cover apprentices under 25, employees under 21 and qualifying veterans: the employee pays as category A and the employer receives relief. J and Z are deferment letters for people already paying the main rate in another job, so only the 2 per cent rate applies.

Contributions are recorded against your National Insurance number and convert into qualifying years. You generally need 35 qualifying years for the full new State Pension and at least 10 to receive any of it, which is why a gap in the record matters more than the size of any single month's deduction. Your record can be checked, and in some cases filled by voluntary contributions, through your personal tax account.