UK National Insurance and classes explained

As a UK employer, it’s crucial to understand the different kinds of taxes and contributions you’re required by law to pay. One such contribution is National Insurance (NI). In the guide we’ll begin with a definition, and then explain the various NI classes, rates and thresholds. So, let’s dig in.

What is National Insurance?

National Insurance (NI) is a payment made by UK companies, their staff, and the self-employed that counts towards certain entitlements, including a state pension, maternity support, bereavement support payment, etc. The right to these entitlements depends on which NI Classes (we’ll explain what these mean later) are paid into.

As a UK business, you’re expected to pay your staff's National Insurance Contributions (NICs) through the Pay As You Earn (PAYE) system. First, you’ll have to withhold from each person's pre-tax income to make the payment. In addition, you’ll also need to make a company NI payment for each staff member.

What is expected of employers?

All the payments must go to HM Revenue and Customs (HMRC), and you’re also expected to provide all your staff with a payslip that shows how much in terms of NICs and tax deductions have been applied to their wages.

It’s crucial to make accurate calculations, as staff can report you to the authorities if they believe you’ve applied inaccurate withholdings.

UK residents are expected to start paying into the system from age 16, once they begin working, until they reach the state pension retirement age. You don’t have to make any more payments for staff who have passed the state pension age by the start of the tax year (6 April).

When was NI introduced? 

The system was introduced in the UK through the National Insurance Act of 1911.

In its early days, it was designed as a welfare system to offer support for workers who lost their job or became ill (and thus unable to perform their duties). Since then, it has evolved and now includes retirement pensions and other entitlements.

What is an NI Number, and how is it formatted?

An NI number (or NINO) is a personal number issued to every individual born in the United Kingdom. The government typically assigns the NI Number before a person turns 16.

Those who move to the UK after birth can apply for their NI number through the Department of Work and Pensions (DWP) if they want to be entitled to support after reaching the state pension age.

The point of the NI Number is to ensure a person’s tax and NI records are made solely in their name.

The NI Number follows this format: It begins with a two-letter code, followed by six digits, and finally ends with another letter.

Here’s what a sample NI Number might look like — AB 12 34 56 C. 

You can typically find the number on P45 and P60 forms.

For the prefix, none of the letters can be D, F, I, Q, U, V. The letter O can only be used as the first letter of the prefix. Furthermore, the prefixes BG, GB, NK, KN, TN, NT, and ZZ are unallocated and not expected to be used.

For the suffix, only the letters A, B, C, and D are to be used.

What is National Insurance used for?

The primary purpose of NI is to create a pool of funds UK workers can access after they become eligible for a State Pension.

As you pay NICs, you aid your staff in building and protecting their entitlement to several forms of support. These include:

• Maternity support

• Jobseeker’s allowance (JSA)

• Employment and support allowance (ESA)

• Bereavement benefits

• Basic state pension

• New state pension

How much is National Insurance?

There’s no fixed amount of NI to pay. Several factors — such as employment status, total income, and applicable NI classes — determine how much is due. There are six NI classes — 1, 1A, 1B, 2, 3, and 4. As an employer, you should be most concerned with 1, 1A, and 1B.

A 2025/26 compliance checklist

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What does Class 1 cover?

These NICs are made by both employer and employee.

The staff member’s portion is known as the “primary contribution,” while your portion as the employer is known as a “secondary contribution”. As mentioned, a staff member’s payment should be automatically withheld from their gross salary. There are several limits (Lower Earning, Primary, Secondary, and Upper Earning) and rates you must know to determine how much NI to withhold from each person’s gross salary.

Here are the various limits that apply:

• The Lower Earning Limit (or LEL): NI payments are not taken from anyone who earns below the LEL. Neither are these individuals entitled to any support. The current LEL is £125 per week, £542 per month, and £6,500 annually. NICs are also not taken from those who earn upwards of the LEL but below the primary threshold. Instead, the government gives these individuals “credits” that allow them to still be entitled to support even though they don’t earn enough.

• The Primary Threshold (PT): People begin to contribute when their income reaches the primary level. For 2025/2026, the PT is £242 per week, £1,048 per month, and £12,570 annually. The same applies for company directors.

• Secondary Threshold (ST): This is when employers begin making NI payments. You’re expected to contribute 15% on each person’s wage that exceeds £96 per week, £417 per month, and £5,000 annually. These payments are in addition to the ones your staff already make.

• Upper Earning Limit (UEL): Staff contribute a lower percentage (2%) on their higher income at this point. The UEL is £967 per week, £4,189 per month, and £50,270 annually. Even though the percentage is lower for staff, employers still contribute 15% on income above the upper limit.

Visit GOV.UK to stay updated with any changes to these figures.

What are the other NI classes?

Beyond NICs made on regular salaries, several other National Insurance classes exist for specific circumstances:

• Class 1A

  • What it’s for: Paid by employers on work-related benefits they provide to employees (e.g., a company car or private health insurance), and reported on a P11D form.

  • 2025/26 Rate: 15% of the value of the benefit.

• Class 1B

  • What it’s for: Also paid by employers, but specifically on items covered by a PAYE Settlement Agreement (PSA), which simplifies the process for minor or irregular expenses.

  • 2025/26 Rate: 15%.

• Class 2

  • What it’s for: A flat-rate contribution for self-employed people that protects their entitlement to state benefits.

  • Who pays: Those with an annual profit over £6,725.

  • 2025/26 Rate: £3.45 per week, or £179.40 per year, declared in a Self Assessment tax return.

• Class 3

  • What it’s for: Voluntary payments anyone can make to fill gaps in their National Insurance record, helping them qualify for the full State Pension.

  • 2025/26 Rate: £17.45 per week.

• Class 4

  • What it’s for: An additional contribution for self-employed people based on the size of their annual profit.

  • Who pays: Those with an annual profit over £12,570.

  • 2025/26 Rates: 6% on profits between £12,570 and £50,270, and 2% on any profit above that.

How Payfit can help with tax and national insurance?

A payroll software like PayFit can help you record employee details, calculate how much National Insurance Contributions and tax to deduct from each employee’s pay, report payroll information to HMRC, and so much more.

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