What is National Insurance and how is it different from income tax?
National Insurance (NI) is an essential part of the UK’s tax system, but it is often misunderstood. If you are new to the UK or starting your first job, understanding employer national insurance contributions and employee NI can be confusing, and you may be left wondering – how much are employer NI contributions? In this blog post, we will explain what National Insurance contributions are, how they differ from income tax, what services NI payments fund, national insurance rates UK, and finding your National Insurance number.
What services do National Insurance CONTRIBUTIONS fund?
National Insurance contributions go towards a range of services and benefits provided by the UK government. The main services and benefits that NI payments fund are:
- The State Pension.
- Jobseeker’s Allowance.
- Employment and Support Allowance.
- Maternity Allowance
- Widowed Parent’s Allowance.
- Bereavement Support Payment.
- The National Health Service (NHS).
- Personal Independence Payment (PIP).
Who pays for National Insurance and what are National Insurance rates?
If you are employed, you and your employer will both have to pay National Insurance contributions. The amount you pay will depend on how much you earn. The current rate for employees is 12% on earnings between £242 and £967 per week, and 2% on earnings above £967 per week. Your employer will also pay 13.8% of your earnings above £175 per week.
If you are self-employed, you will need to pay Class 2 and Class 4 National Insurance contributions. Class 2 contributions are a fixed weekly amount of £3.45, and Class 4 contributions are based on your profits. The current rate for Class 4 contributions is 9% on profits between £12,570 and £50,270 and 2% on profits over £50,270.
For those working abroad, you can read our blog post on overseas NI contributions.
What are the benefits of paying National Insurance contributions?
Paying National Insurance contributions can provide you with access to a range of state benefits, including the State Pension, maternity and paternity pay, and sick pay. It can also help you to qualify for contributions-based Jobseeker’s Allowance and Employment and Support Allowance if you are unable to work due to illness or disability, often reviewed with guidance from financial accounting services in London.
In addition to providing you with access to state benefits, paying National Insurance contributions can also help you to build up a National Insurance record, which is used to calculate your State Pension entitlement. To qualify for the full State Pension, you will need to have paid or been credited with enough National Insurance contributions.
Can I make voluntary NI contributions?
If you are not employed or self-employed, you may still be able to make voluntary National Insurance contributions. This can be beneficial if you have gaps in your National Insurance record, for example, if you have taken time out of work to care for children or have lived abroad.
Voluntary contributions can help you to build up your National Insurance record and may help you to qualify for certain state benefits, including the State Pension. The amount you pay and the benefits you receive will depend on the type of voluntary contributions you make.
There are two types of voluntary NI contributions:
Class 3 contributions:
These are voluntary contributions that you can make to fill gaps in your National Insurance record. The current rate for class 1a NIC and Class 3 contributions is £15.40 per week. You can make Class 3 contributions for any tax year in which you have a gap in your National Insurance record.
Class 2 contributions:
These are voluntary contributions that you can make if you are self-employed but have not earned enough to be required to pay Class 2 contributions. The current rate for Class 2 contributions is £3.05 per week. Paying Class 2 contributions voluntarily can help you to build up your National Insurance record and qualify for state benefits.
It is worth noting that voluntary contributions may not always be the best option for everyone. Before making any voluntary contributions, you should speak to a financial advisor or contact HM Revenue and Customs (HMRC) for advice on your individual circumstances. You can also use an employers NI calculator to check your obligations and understand company NI contributions for your staff.
How to find your National Insurance Number
Your National Insurance Number (NIN) is a unique identifier used by HM Revenue and Customs (HMRC) to track your National Insurance contributions and ensure that you are paying the correct amount. If you are unsure of your NIN, there are several ways to find it:
- Check your payslip – Your NIN should be printed on your payslip. If you are employed, your employer should have your NIN on file and include it on your payslip.
- Check official documents – Your NIN may be listed on official documents such as your P60, tax return, or any correspondence you have received from HMRC.
- Contact HMRC – If you are unable to find your NIN, you can contact HMRC and request that they send you a letter confirming your NIN. You will need to provide personal information such as your name, date of birth, and address to verify your identity.
- Use the government’s online service – You can use the government’s online service to find your NIN if you have a UK passport or a UK driving licence. You will need to create an account and provide personal information to verify your identity.
It’s important to keep your NIN safe and secure, as it is a valuable piece of personal information that can be used to steal your identity. Never share your NIN with anyone unless you are sure that it is necessary, and always keep it private.
Plan for National Insurance Costs Before the Tax Year Changes
National Insurance contribution rates affect take-home pay, payroll costs, and employer compliance, and misunderstandings can quickly lead to underpayments or HMRC disputes. Cigma Accounting works with employers and individuals across London to explain how employer National Insurance contributions and employee contributions apply in real situations, helping you make informed decisions with confidence and avoid costly errors through reliable accounting services in London expertise.
From our Kingston Upon Thames, supporting clients in Surbiton and Norbiton, we help ensure company NI contributions are calculated correctly and aligned with PAYE obligations. With physical offices across London, our team can also support accurate payroll setup, using an employers NI calculator to verify amounts, and provide ongoing compliance, giving businesses dependable guidance from experienced payroll services in London specialists.
National Insurance Contributions & Employer NI Rates: Frequently Asked Questions
What are National Insurance contributions and what do they fund?
National Insurance contributions (NICs) are compulsory payments made by employees, employers, and the self-employed to fund core UK state benefits and public services. NICs fund the State Pension, NHS, Jobseeker’s Allowance, Employment and Support Allowance, Maternity Allowance, Bereavement Support Payment, and Personal Independence Payment. Both the amount you pay and your entitlement to certain benefits depend on your employment status, earnings, and the class of National Insurance contribution you make.
What are the current National Insurance rates for employees in the UK?
The current National Insurance rates for employees are 8% on weekly earnings between £242 and £967, and 2% on earnings above £967 per week. These rates apply to Class 1 employee NICs and are deducted automatically through PAYE by your employer. Your National Insurance contributions do not apply to earnings below £242 per week, which is the primary threshold. Rates are set by HMRC and reviewed annually, so it is important to check the current figures for each tax year.
What are the employer National Insurance contribution rates for 2025/26?
From April 2025, employer National Insurance contributions increased to 15% on employee earnings above £96 per week reduced from the previous secondary threshold of £175 per week. This change significantly increased payroll costs for many UK businesses, particularly those with large numbers of part-time or lower-paid staff. Employers must calculate and pay these contributions through PAYE in addition to the employee’s own National Insurance deductions.
How much are employer NI contributions per employee?
Employer NI contributions are calculated at 15% of each employee’s gross earnings above the secondary threshold of £96 per week for 2025/26. For example, if an employee earns £600 per week, the employer pays 15% on £504 the amount above the threshold resulting in £75.60 in employer NICs per week for that employee. The Employment Allowance allows eligible smaller businesses to reduce their annual employer NI bill by up to £10,500, offsetting a significant portion of the cost.
What is the difference between employee and employer National Insurance contributions?
Employee National Insurance contributions are deducted from an individual’s gross pay before they receive their salary, reducing their take-home pay directly. Employer National Insurance contributions are an additional payroll cost paid by the business on top of the employee’s wages they do not reduce the employee’s salary. Both are calculated separately using different thresholds and rates. Employees currently pay 8% and 2% depending on earnings, while employers pay 15% on earnings above the secondary threshold.
Do self-employed people pay National Insurance contributions?
Yes. Self-employed individuals pay Class 2 and Class 4 National Insurance contributions rather than Class 1. Class 2 NICs are a fixed weekly amount, currently £3.45, and help build entitlement to the State Pension and certain benefits. Class 4 NICs are profit-based: 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270. Self-employed people do not pay employer National Insurance contributions, as there is no employer relationship, but they must report and pay their NICs through Self Assessment.
Can voluntary National Insurance contributions fill gaps in my record?
Yes. If you have gaps in your National Insurance record for example, due to time spent abroad, career breaks, or caring responsibilities you can make voluntary contributions to fill them. Class 3 voluntary NICs cost £17.45 per week and can be used to top up missing years, which may improve your State Pension entitlement. It is worth checking your National Insurance record on the government website and calculating whether paying to fill a gap will increase your eventual State Pension by enough to justify the cost.
What is the Employment Allowance and how does it reduce employer NI contributions?
The Employment Allowance allows eligible UK employers to reduce their annual employer NI contributions bill by up to £10,500 per tax year. It is claimed through payroll software and offsets employer NICs due each month until the allowance is used up or the tax year ends. Most small and medium-sized businesses qualify, but companies where the sole employee is also a director do not. For businesses with multiple staff members, the Employment Allowance can substantially reduce the overall payroll cost of employer National Insurance.
CONFUSED ABOUT HOW NATIONAL INSURANCE CONTRIBUTIONS ACTUALLY WORK?
Employee, employer, and self-employed National Insurance rules vary by earnings, category, and tax year. Clear professional insight can help you understand what applies in practice, ensure contributions are correct, and avoid issues with HMRC later on.
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