What is National Insurance?

National Insurance (NI) shows up on every payslip alongside income tax, but it’s a completely separate charge with its own rules and its own purpose. Here’s what it is, what it pays for, and how much you’re likely to owe for 2026/27.

A tax with a different job

While income tax funds general public spending, National Insurance contributions are tied to your entitlement to contributory benefits — most importantly the state pension, plus some benefits like contribution-based Jobseeker’s Allowance and Maternity Allowance. Your NI record is built up from the contributions you make during your working life.

The practical upshot: income tax and NI look similar on a payslip, but they’re calculated differently, on different earnings, and they buy you different things.

How much employees pay

For 2026/27, employees pay Class 1 National Insurance:

• 8% on earnings between £12,570 and £50,270
• 2% on earnings above £50,270

There is no NI on the first £12,570 of earnings — the same figure as the income tax personal allowance, but a coincidence rather than a rule.

Worked example — £40,000 a year. Earnings above £12,570: £27,430. £27,430 × 8% = £2,194 National Insurance for the year (about £183 a month).

Income tax vs National Insurance at a glance

	Income tax	National Insurance
What it’s based on	Your total taxable income — salary, profits, pension, savings and rental income	Your employment earnings only (Class 1)
First £12,570	0% (personal allowance)	0%
£12,570 – £50,270	20%	8%
£50,270 – £125,140	40%	2%
Over £125,140	45%	2%
Paid on savings interest and rental income	Yes	No
Paid by people over state pension age	Yes	No
What it pays for	General public spending	State pension and contributory benefits

The 2% “upper rate” above £50,270 is the reason higher earners’ combined tax + NI rate falls — on the slice between £50,270 and £125,140 income tax jumps from 20% to 40%, but NI drops from 8% to 2%.

What your NI looks like at different salaries

Annual salary	Your NI (Class 1)	Your employer’s NI
£20,000	£594	£2,250
£30,000	£1,394	£3,750
£40,000	£2,194	£5,250
£50,270	£3,016	£6,791
£60,000	£3,211	£8,250
£100,000	£4,011	£14,250

Notice the jump at £50,270: beyond that level only the 2% rate applies, so each extra £1,000 of salary costs you just £20 more NI (before income tax is considered).

Employers pay too

On top of your own contributions, your employer pays 15% on your earnings above £5,000 a year for 2026/27. You never see this on your payslip, but it’s a real cost of employing you — and it’s a big part of why hiring someone costs more than their gross salary. If you run a business, our payroll and employer costs guide breaks the full cost down.

The different classes

NI comes in several classes depending on how you earn:

• Class 1 — paid by employees (8%/2%) and their employers (15%)
• Class 2 — flat weekly payment by self-employed people with profits above £7,105 (£3.65 a week for 2026/27)
• Class 3 — voluntary contributions, used to fill gaps in your NI record
• Class 4 — paid by self-employed people on profits (6% between £12,570 and £50,270, 2% above)

If you’re an employee who also trades as a sole trader, you can pay Class 1 and Class 2/4 in the same year — they’re separate charges on employment earnings and self-employment profits respectively.

Do directors pay differently?

Salaried directors pay Class 1 NI exactly like other employees on their salary. Dividends, however, are not employment earnings, so they carry no National Insurance at all. That’s one of the main reasons limited company owners take a mix of salary and dividends — and it’s why our dividend tax calculator is worth running alongside the payroll calculator before you decide what to pay yourself.

When you stop paying

You stop paying NI when you reach state pension age, even if you’re still working. If you’re an employee, your employer continues to pay their share on your earnings.

Why your NI record matters

Your NI contributions qualify you for the state pension. You generally need around 35 qualifying years of contributions or credits to get the full amount; each qualifying year adds to your entitlement, so gaps in your record can reduce what you receive at retirement.

You can check your contribution record and forecast your state pension for free in your Personal Tax Account on GOV.UK. If you have gaps, voluntary Class 3 contributions can sometimes fill them — the decision is a genuine value-for-money question (how many years of your state pension a payment buys you), so always get advice before paying.

It’s also worth knowing that you can earn NI credits without working: time spent claiming child benefit for a child under 12, carers allowance, and some other circumstances can count towards your record.

Work out your own bill

Use the National Insurance calculator to see your NI for 2026/27, or the salary calculator for income tax, NI, pension and student loan deductions together.