What Are National Insurance Contributions?
National Insurance contributions are payments made by employees, employers, and the self-employed that fund the UK State Pension and certain benefits. This guide covers all NIC classes, rates, and thresholds.
National Insurance Explained
National Insurance contributions (NICs) are a form of tax paid by workers and employers in the UK. They fund the State Pension, Statutory Sick Pay, Maternity Allowance, and other state benefits. NICs are separate from income tax , although both are collected by HMRC.
Your NIC record determines your entitlement to certain benefits and your State Pension. You generally need 35 qualifying years of National Insurance to receive the full new State Pension.
Classes of National Insurance
There are several classes of NICs, each applying to different groups:
| Class | Who Pays | How Collected |
|---|---|---|
| Class 1 (employee) | Employees earning above the Primary Threshold | Deducted through PAYE |
| Class 1 (employer) | Employers on employee earnings above the Secondary Threshold | Paid by employer alongside PAYE |
| Class 1A | Employers on benefits in kind | Annual payment to HMRC |
| Class 1B | Employers on items in a PAYE Settlement Agreement | Annual payment to HMRC |
| Class 2 | Self-employed with profits above the Small Profits Threshold | Through self-assessment |
| Class 3 | Voluntary contributions to fill NIC gaps | Paid directly to HMRC |
| Class 4 | Self-employed with profits above the Lower Profits Limit | Through self-assessment |
Class 1: Employee and Employer NICs
Employee Contributions (2024/25)
| Earnings Band | Rate |
|---|---|
| Up to £242 per week (Primary Threshold) | 0% |
| £242.01 to £967 per week (Upper Earnings Limit) | 8% |
| Above £967 per week | 2% |
The Primary Threshold aligns with the income tax personal allowance on an annual basis (£12,570). Employees start paying NICs once their earnings exceed this threshold.
Employer Contributions (2024/25)
| Earnings Band | Rate |
|---|---|
| Up to £175 per week (Secondary Threshold) | 0% |
| Above £175 per week | 13.8% |
From April 2025, the employer NIC rate increases to 15% and the Secondary Threshold drops to £96 per week (£5,000 per year).
Employer NICs are an additional cost on top of the employee’s salary. They are a tax-deductible expense for the employer when calculating corporation tax or income tax.
Reduced Thresholds for Certain Employers
Some employers benefit from higher secondary thresholds, meaning they pay no employer NICs until the employee earns more:
| Category | Annual Threshold |
|---|---|
| Employees under 21 | £50,270 |
| Apprentices under 25 | £50,270 |
| Veterans (first year of civilian employment) | £50,270 |
| Freeport and Investment Zone employees | £25,000 |
Class 2 and Class 4: Self-Employed NICs
Self-employed individuals pay two classes of National Insurance through their self-assessment tax return.
Class 2 NICs
- Flat rate of £3.45 per week (2024/25)
- Due if profits exceed the Small Profits Threshold of £6,725
- Provides entitlement to State Pension and certain benefits
- Can be paid voluntarily if profits are below the threshold
Class 4 NICs (2024/25)
| Profits Band | Rate |
|---|---|
| Up to £12,570 (Lower Profits Limit) | 0% |
| £12,570 to £50,270 (Upper Profits Limit) | 6% |
| Above £50,270 | 2% |
Class 4 NICs do not count towards benefit entitlement — that comes from Class 2. Class 4 is purely a tax on self-employed profits.
Class 3: Voluntary Contributions
Class 3 NICs are voluntary payments that can fill gaps in your National Insurance record. The rate is £17.45 per week (2024/25). You can usually go back and fill gaps for the previous 6 tax years.
Voluntary contributions are worth considering if:
- You have gaps in your NIC record that will reduce your State Pension
- You were living or working abroad
- You were not working and not claiming benefits
- You were self-employed with profits below the Small Profits Threshold
Class 1A and 1B: Employer-Only Contributions
Class 1A
Employers pay Class 1A NICs at 13.8% on the value of most benefits in kind provided to employees. These include company cars, private medical insurance, and other taxable perks reported on forms P11D. From April 2025, this rate rises to 15%.
Class 1A is due by 22 July following the tax year (or 19 July for postal payments).
Class 1B
Class 1B NICs apply to items included in a PAYE Settlement Agreement (PSA). A PSA allows employers to settle the tax and NICs on minor, irregular, or impractical benefits on behalf of employees. The rate matches Class 1A at 13.8%.
Employment Allowance
Employers can claim the Employment Allowance to reduce their employer NIC bill by up to £5,000 per year. This is available to businesses with employer NIC liability below £100,000 in the previous tax year, but not to companies where the sole employee is a director.
The allowance is claimed through the Employer Payment Summary (EPS) as part of the PAYE reporting process.
NICs and the State Pension
Your National Insurance record directly affects your State Pension entitlement:
- New State Pension (for those reaching State Pension age from 6 April 2016): Up to £221.20 per week (2024/25)
- You need 35 qualifying years for the full amount
- You need at least 10 qualifying years to get any State Pension
A qualifying year is one in which you:
- Paid or were treated as having paid enough NICs
- Received National Insurance credits (for example, while claiming certain benefits or caring for a child under 12)
NICs and IR35
Contractors working through personal service companies must be aware of IR35 rules. If a contract is caught by IR35, the worker must pay employee NICs on deemed employment income, and the fee-payer must pay employer NICs. This significantly increases the total tax burden compared to paying dividends from a limited company.
Directors’ NICs
Company directors have their NICs calculated on an annual basis rather than period by period. This means the annual thresholds and limits apply to total earnings for the year, regardless of how they are paid. Alternatively, employers can choose to operate NICs on a per-period basis using the alternative method.
Record Keeping
You can check your National Insurance record online through your Personal Tax Account on GOV.UK. This shows:
- How many qualifying years you have
- Any gaps in your record
- Whether you can pay voluntary contributions to fill gaps
- Your projected State Pension amount
Employers must keep NIC records as part of their payroll records for at least 3 years after the end of the tax year, maintaining proper accounting records as required by HMRC.