Contributions to national insurance: what are they?

Few of us truly comprehend the National Insurance contributions, even though the majority of us pay them

This is our guide to help you understand national insurance.

Employees and independent contractors must pay the National Insurance (NI) tax on their earnings, which is based on their profits. National Insurance contributions (NICs) are not levied on income from other sources, such as savings, pensions, or rental properties, in contrast to income tax.

Pay-as-you-earn (PAYE) workers who are 16 years of age or older and exceed a specific income threshold are required to pay NICs. A different kind of NI is paid by self-employed individuals based on their income.

Because they grant you access to the state pension and other benefits like Jobseekers Allowance, NICs are crucial.

Contributions can be made voluntarily by those who do not pay mandatory NICs to help preserve these rights. Additionally, you can claim NI credits for unpaid labor such as child care.

People who pay NICs are not the only ones. Companies also contribute on behalf of their workers; the amount is based on each worker's income. In the Autumn Budget of 2024, the government raised the amount that employers must pay.

NI is the government's second-largest revenue source, after income tax. Twenty percent of total tax revenues, or more than 172 billion, were raised by NICs in the 2024 - 2025 tax year. Employers were responsible for paying 67 percent of the NI bill, which was the largest portion.

It is crucial to comprehend the NI system's operation and the purposes of the funds. This is what you should know.

How much do you pay for your national insurance?

If you have a job, you will begin paying Class 1 NICs at age 16 on weekly earnings over £242 (as long as they are from a single job). A separate class of NICs is paid by independent contractors; more on that is provided below.

The NI rate for Class 1 contributions in the 2025 - 2026 tax year is 8% of weekly incomes between 242 and 967. If you make more than that, the rate is 2 percent. Because the amount you contribute is determined by your pay, if your salary changes each month, your NICs may also change.

The PAYE system is used to pay NI to most employees. This implies that you won't have to make any additional payments because it will be automatically deducted from your income.

After you reach state pension age, you cease making NIC payments.

Do I have to pay National Insurance if I work for myself?

For self-employed individuals, NI rates and payment methods vary as well. You must be aware of Class 2 and Class 4 contributions if you work for yourself.

You have the option to make voluntary Class 2 contributions, which cost 3 points 50 per week (2025/26), if your yearly trading profits are less than 6,845. You can avoid gaps in your NI record by doing these. Despite not having to pay anything, you are considered to have made Class 2 contributions to safeguard your NI record if your profits fall between 6,845 and 12,570. Classes 4 contributions must be paid if your profits exceed £12,570. On profits between £12,570 and £50,270, you pay 6%, and on any amount above that, you pay 2%. Contributions can be made using your self-assessment tax return. They are due simultaneously with income taxes.

A self-employed person who reaches state pension age ceases to pay NICs at the beginning of the tax year.

What is the goal of national insurance?

Numerous benefits are funded by NICs. These consist of Bereavement Support Payments, the Maternity Allowance, the Jobseekers Allowance, the Employment and Support Allowance, and the state pension. A tiny portion goes to the NHS as well.

What are contributions to National Insurance that are voluntary?

To be eligible for the full new state pension, you must have accrued 35 years of NICs.

You can voluntarily make NICs for times when you were unemployed and not claiming benefits, living or working overseas, or possibly working but earning little money in order to prevent gaps in your record. Class 3 NICs are what these are called.

You can use the government website to find out your state pension forecast if you don't think you'll have 35 years of NICs by the time you reach state pension age. By doing so, you can determine how many voluntary NICs you will require and whether you should purchase any.

Note that you can typically only purchase voluntary contributions for the previous six years if you want to backdate your record. The current cost of a Class 3 NIC is 17 points per week, or 923 for a year (2025/26 rates).

Financial services company Just Group's communications director, Stephen Lowe, stated that "for some, it may make sense to pay extra to make the contributions voluntarily and retrospectively for the previous six tax years." Over the course of retirement, the additional income could balance out the initial outlay for these contributions.

Purchasing a year's worth of credits gives you a one-third increase in the total state pension amount, which is currently equivalent to £342 more annually. You should be able to recoup your investment within three years of receiving your state pension, based on current rates.

However, not everyone needs to purchase voluntary NICs. The first thing you should do is see if you qualify for free NI credits.

Credit for national insurance.

It's crucial to determine your eligibility for free credits before purchasing voluntary NICs. Sometimes you have to apply for these, but other times they can be automatic.

You might be eligible if you are receiving specific benefits, are sick or disabled, or are providing care for someone (like a small child). The complete list of requirements is available on the government website.

How to receive credit for caring for small children.

NI credits are granted to parents who care for children under the age of twelve. By submitting an application for Child Benefit, you can get this. Child Benefit can only be claimed by one person per child.

Because Child Benefit is means tested, higher earners are not eligible for the payment; however, even if you make more than the threshold, it is still worthwhile to register for the benefit to guarantee that you receive the NICs.

You can refuse or return any money you aren't entitled to in a number of ways. A self-assessment tax return is how some people pay the excess back, which is known as the high income child benefit charge (HICBC).

You can also choose not to receive the payment by checking a box on the Child Benefit application form, but you will still receive the useful NI credit.

What does employers' national insurance mean?

Employers and individuals both pay NI. The government announced an increase in employers' NICs in the previous year's autumn budget.

There were two modifications. First, the employer contribution rate was raised from 13.8 percent to 15 percent. Second, the contribution threshold was lowered, so companies now pay taxes when a worker's salary reaches £5,000 instead of the previous threshold of £9,100.

In light of the increases, a company that pays an employee £30,000 a year will now have to pay 865 to 80 more to keep them on the payroll, according to Quilter's calculations.

While this has no direct effect on workers, employers may see fewer pay increases and smaller bonuses as a result of the higher NI bills. For some businesses, it might even lead to redundancies.

Conversely, it may also result in more opportunities for salary sacrifice plans, in which workers willingly lower their taxable income in return for perks like higher pension contributions or even vehicles like bicycles or cars. In addition to helping you pay less in income tax and NI, salary sacrifice also helps employers reduce their NI bill.