What are National Insurance contributions?

National Insurance (NI) is a tax on earnings paid by employees and the self-employed, who pay it on their profits. Unlike income tax, National Insurance contributions (NICs) are not charged on income from other sources such as savings, pensions or rental properties.

All pay-as-you-earn (PAYE) employees aged between 16 and state pension age must pay NICs if they earn over a certain amount. Self-employed workers pay a different type of NI, depending on their earnings.

NICs are important because they entitle you to the state pension, as well as other benefits like Jobseeker’s Allowance.

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Those who do not pay compulsory NICs can make voluntary contributions to help protect these entitlements. You can also claim NI credits for unpaid work like caring for young children.

It is not just individuals who pay NICs. Businesses also make contributions on behalf of their employees, with the rate determined by how much each worker earns. The government increased the amount employers pay in the 2024 Autumn Budget.

NI is the second-biggest source of revenue for the government after income tax. In the 2024/25 tax year, NICs raised more than £172 billion, equivalent to 20% of total tax receipts. Employers footed the largest part of the NI bill, paying 67% of the total.

It is important to understand how the NI system works and what the money is used for. Here is what you need to know.

How much National Insurance do you pay?

If you are employed, you will start paying Class 1 NICs from age 16 on earnings of over £242 per week (provided they come from one job). Self-employed people pay a different class of NICs – more on that below.

In the 2025/26 tax year, the NI rate for Class 1 contributions is 8% on weekly earnings between £242 and £967. The rate for earnings over that threshold is 2%. The amount you contribute is calculated based on how much you get paid, so your NICs could change monthly if your salary fluctuates.

For the majority of employees, NI is paid through the PAYE system. This means it is automatically deducted from your earnings, and you don’t need to make any separate payments.

You stop paying NICs once you reach state pension age.

Do I pay National Insurance if I am self-employed?

The rates of NI are different for self-employed people, and the way it is paid differs too. If you are self-employed, you need to know about Class 2 and Class 4 contributions.

• If your annual trading profits are below £6,845, you can opt to make voluntary Class 2 contributions if you want to, costing £3.50 per week (2025/26). These can help you avoid gaps in your NI record.
• If your profits are between £6,845 and £12,570, you are counted as having made Class 2 contributions to protect your NI record, but you don’t need to actually pay anything.
• If you make profits of more than £12,570, you will need to pay Class 4 contributions. You pay 6% on profits between £12,570 and £50,270, and 2% on anything over that.

You can pay your contributions through your self-assessment tax return. They are due at the same time as income tax.

Self-employed people stop paying NICs from the start of the tax year after they reach state pension age.

What does National Insurance go towards?

NICs go towards funding a long list of benefits. These include the state pension, Employment and Support Allowance, the Maternity Allowance, Jobseeker’s Allowance and Bereavement Support Payments. A small amount is also directed to the NHS.

What are voluntary National Insurance contributions?

You need 35 years of NICs to qualify for the full new state pension.

To avoid gaps in your record, you can make voluntary NICs for periods when you were perhaps working but with low earnings, not working and not claiming benefits, or living or working abroad. These are known as Class 3 NICs.

If you don’t think you will have 35 years of NICs by the time you reach state pension age, you can check your state pension forecast using the government website. This can help you figure out whether you should buy voluntary NICs and how many you will need.

If you are looking to backdate your record, note that you can usually only buy voluntary contributions for the past six years. Class 3 NICs currently cost £17.75 for a week, or £923 for a year (2025/26 rates).

“For some, it may make sense to pay extra to make the contributions voluntarily and retrospectively for the previous six tax years,” said Stephen Lowe, communications director at Just Group, a financial services company. “The extra income over the course of a retirement may offset the initial cost of these contributions.”

Buying one year’s worth of credits entitles you to 1/35th more of the full state pension amount – currently equivalent to £342 extra per year. Based on current rates, that means you should make your money back within three years of receiving your state pension.

That said, buying voluntary NICs doesn’t make sense for everyone. You should check your eligibility for free NI credits first.

National Insurance credits

Before buying voluntary NICs, it's important to check whether you are eligible for free credits. These can be automatic but sometimes they will need to be applied for.

You may qualify if you are on certain benefits, caring for someone (such as a young child), or if you are ill or disabled. You can find the full list of eligibility criteria on the government website.

How to claim credits for looking after young children

Parents are entitled to NI credits for looking after children under the age of 12. You can claim this by applying for Child Benefit. Only one person can claim Child Benefit for each child.

Child Benefit is means tested, meaning higher earners don’t qualify for the payment, but it is still worth registering for the benefit to ensure you receive the NICs, even if you are over the income threshold.

There are several ways of returning or declining any money you aren’t entitled to. Some people pay the excess back through something known as the high income Child Benefit charge (HICBC) – you do this by filing a self-assessment tax return.

Alternatively, you can tick a box on the Child Benefit application form to opt out of receiving the payment, while still receiving the valuable NI credit.

What is employers’ National Insurance?

NI is paid by employers as well as individuals. In last year’s Autumn Budget, the government announced an increase to employers’ NICs.

The changes were two-fold. Firstly, the rate of employer contributions was increased from 13.8% to 15%. Secondly, the threshold for contributions was dropped, meaning businesses now begin paying the tax once a salary hits £5,000, down from £9,100 previously.

According to calculations by Quilter, under the increases, a business employing someone on an annual salary of £30,000 will now pay £865.80 more each year to keep them on the payroll.

While this doesn’t directly impact employees, the increased NI bills for employers could mean fewer pay rises and smaller bonuses for staff. It could even trigger redundancies for some businesses.

On the flip side, it could also mean more opportunity for salary sacrifice schemes where employees voluntarily reduce their taxable income in exchange for benefits like additional pension contributions or even cars or bicycles. Salary sacrifice helps employers cut their NI bill, while also helping you pay less NI and income tax.