National Insurance contributions (NICs) in the UK

What is National Insurance?

National Insurance is a tax on earnings paid by most UK workers. Both employed and self-employed workers pay National Insurance contributions, which are known as ‘NICs’.

You need to pay NICs in order to qualify for certain government benefits, such as:

• Maternity Allowance
• Jobseeker’s Allowance
• The State Pension.

NICs are paid alongside income tax contributions on earnings. But unlike income tax, NICs are not charged on income from other sources such as savings, investments, pensions or property.

National Insurance rates are set by the Government, with changes to rates usually announced in the annual Budget.

What is a National Insurance number?

A National Insurance number is a number unique to you which is used to record your NI and tax contributions. Your NI number is also used as a reference number for the UK benefits system.

You must have a National Insurance number (NINO) to work or claim benefits in the UK. Your National Insurance number remains the same for life.

You’ll usually get a letter from the Department for Work and Pensions (DWP) shortly before your 16th birthday confirming your National Insurance number. If you move to the UK from abroad to work, you will need to apply for an NI number.

Each National Insurance number is made up of two letters, six numbers and a final letter. For example, JA123456B.

Your NI number will be on various documents such as:

• Payslips from your job
• Your tax return
• A PAYE coding notice
• A P45 or P60

Why are National Insurance contributions important?

National Insurance contributions are important as paying NI affects your right to benefits and how much State Pension you receive.

Which benefits are based on National Insurance contributions?

How much you pay in NICs affects your benefit entitlement for:

• New Style Jobseeker’s Allowance
• Contribution-based Employment and Support Allowance
• Maternity Allowance
• Bereavement Support Payment

What is the money collected by National Insurance used for?

The money collected by NICs is used to support or pay for:

• The NHS
• Unemployment benefits
• Sickness and disability allowances
• The State Pension

Types of National Insurance contributions

There are different types of National Insurance contributions – these are known as ‘classes’. The class of NIC you pay depends on your employment status and how much you earn.

NIC Class 1

You’ll pay Class 1 NICs if you’re employed. Employed NICs are automatically deducted from your pay in the same way that income tax is deducted, via the Pay As Your Earn (PAYE) system. How much you pay in NICs will be shown on your payslip.

These deductions are also known as:

• ‘Primary’ Class 1 NICs
• Employee NICs
• Employed NICs

The amount you’ll pay depends on how much you earn. NIC rates for 2024 (tax year 6 April 2024 to 5 April 2025) are shown on the following table.

As an example, if you earn £1,000 a week, you will pay:

1. Zero on the first £242
2. 8% on the next £725 = £58
3. 2% on the next £33 = £0.66

This equals a total of £58.66 a week.

Your NICs are calculated each time you get paid. So, you might pay different amounts if your pay changes due to hours worked, bonuses or commission.

In addition, your employer will also pay ‘secondary’ Class 1 NICs. These are also known as ‘employer’s NICs’. Secondary Class 1 NICs are set at 13.8% of an employee’s gross salary above a certain threshold. For the 2024/25 tax year, the threshold for most workers is £175 a week or £758 a month.

The secondary threshold for workers under 21 or apprentices under 25 is £967 a week or £4,189 a month. This high threshold means employers don’t usually pay secondary Class 1 NICs for staff under the age of 21 or apprentices.

Employers also have to pay secondary Class 1 NICs on some employee benefits, such as company cars, gym memberships and private medical insurance. These are known as Class 1A NICs.

A scheme call Employment Allowance allows some employers to reduce their annual National Insurance liability by up to £5,000.

Class 2 NICs

Class 2 NICs are a type of self-employed NIC, paid by people who work for themselves rather than an employer. Class 2 contributions were set at £3.45 per week for the 2023 to 2024 tax year and paid by most self-employed workers aged between 16 and State Pension age.

Class 2 NICs provide entitlement towards ‘contributory’ state benefits, such as the State Pension, Maternity Allowance and Employment and Support Allowance.

The government announced changes to Class 2 NICs in the Autumn Statement 2023. These changes took effect from 6 April 2024. The changes mean that most self-employed workers no longer need to pay Class 2 NICs if they have annual profits of more than £12,570 (known as the Lower Profits Limit). However, these workers will still be entitled to contributory state benefits.

Self-employed workers with profits between £6,725 (the Small Profits Threshold) and the Lower Profits Limit don’t have to pay Class 2 NICs either, but they are treated as if they have paid them via a National Insurance ‘credit’. This protects their NIC record regarding eligibility for contributory state benefits.

Since 6 April 2024 self-employed workers with annual profits of less than £6,725 are no longer obliged to pay Class 2 NICs. However, they can make voluntary Class 2 NICs to build their entitlement to contributory benefits, with the rate remaining at £3.45 a week for the 2024/25 tax year.

Class 3 NICs

Class 3 NICs are paid by people who want to make voluntary NICs to fill gaps in their NI record. Voluntary NICs can help make sure you have enough qualifying years to get the full State Pension and certain other contributory benefits.

You might have gaps in your NI record if at some point you were:

• Employed but had low earnings
• Unemployed and not claiming benefits
• Self-employed but did not pay NICs because of low profits
• Living or working outside the UK

The weekly Class 3 rate for the 2024/25 tax year is £17.45 a week.

Class 4 NICs

Class 4 NICs are paid by self-employed workers. How much you’ll pay is calculated using your annual profits.

The following table shows how much you’ll pay in the 2024/25 tax year.

How are NICs calculated?

NICs are calculated in a similar way to income tax. The amount you’ll pay depends on your employment status and how much you earn.

If you’re employed, NICs are calculated on your gross (before tax) earnings. Usually, you only need to pay NICs if you earn more than £1,048 a month (£12,570 a year).

If you’re self-employed, NICs are based on your profits. You will only need to pay NICs if you have profits of more than £12,570 a year.

Who needs to pay NICs?

NICs are paid by most employees, self-employed workers and employers.

If you are an employee but also do self-employed work, your employer will deduct your Class 1 NICs from your wages, and you might also need to pay Class 4 NICs for your self-employed work.

If you’re employed, you stop paying NICs when you reach State Pension age. If you’re self-employed, you stop paying NICs at the start of the next tax year after you reach State Pension age.

How to pay National Insurance

For the employed

National Insurance for the employed is paid via the PAYE (Pay As You Earn) system alongside income tax. Your employer will deduct NI from your wages before you get paid and your payslip will show your contributions.

If you’re a director of a limited company, you will normally pay Class 1 NICs via your company’s payroll.

For the self-employed

If you’re self-employed, you’ll normally pay NICs via your self-assessment tax return.

Voluntary contributions

Class 2 voluntary NICs are usually paid via self-assessment. You can register for self-assessment with HMRC to make these payments.

Class 3 voluntary NICs can be paid via Direct Debit, online bank transfer or quarterly payment to HMRC. How you will pay depend on your circumstances. More information can be found on the government website.

Before you pay voluntary NICs you should check your NI record to find out:

• If you have any gaps
• If you are eligible to pay voluntary contributions
• How much it will cost

You can normally only go back six tax years to fill gaps in your NI record with voluntary contributions.

Impact of NICs on your state benefits

You pay NICs in order to qualify for certain benefits and the State Pension.

The following benefits are impacted by your NICs:

• New style Jobseeker’s Allowance
• Contribution-based Employment and Support Allowance
• Maternity Allowance
• Bereavement Support Payment

Benefits not impacted by NICs include:

• Universal Credit
• Child Benefit
• Personal Independent Payment
• Carer’s Allowance

You need a minimum number of ‘qualifying years’ in order to be eligible for the full State Pension amount. You can check your State Pension forecast online.

You usually need 35 years’ worth of qualifying National Insurance credits to claim a full State Pension. If you have made between 10 and 35 years of qualifying contributions or credits, you’ll receive a proportionate amount of State Pension. You’ll need at least 10 qualifying years to get any State Pension at all.

What is a National Insurance credit?

National Insurance credits can fill any gaps in your National Insurance record, by helping you build up ‘qualifying years’ of NICs for benefits and the State Pension.

You might be entitled to National Insurance credits if you are:

• Claiming benefits due to ill health or unemployment
• On maternity, paternity or adoption pay
• Not working and receiving Child Benefit
• Looking after a child under 12
• Participating in an approved training course
• Married to or the civil partner of a member of the Armed Forces and you join them abroad for an overseas posting
• Taking part in jury service
• Someone who has served a prison sentence for a conviction that was later quashed
• Caring for someone for at least 20 hours a week

Checking your National Insurance record

You can check your National Insurance record on the government website.

This will show:

• What you’ve paid, up to the start of the current tax year
• Any National Insurance credits you’ve received
• Gaps in contributions or credits
• If you would benefit from paying voluntary contributions to fill any gaps
• The impact of voluntary contributions on your State Pension forecast
• How much any voluntary contributions would cost

Rectifying errors on your NIC record

If you think there are mistakes on your NIC record, you can rectify them by contacting the National Insurance Contributions and Employer Office.

You should explain why you think your record is wrong and include any evidence you have, such as payslips or a P60.

You can write to the National Insurance Contributions and Employer Office at HM Revenue and Customs, BX9 1AN, or phone 0300 200 3500.

You can also use the HMRC digital assistant to ask HMRC online.

Summary: Understanding your NICs

Most workers, both employed and self-employed, pay NICs. The class of NIC you pay depends on your employment status and earnings.

You’ll need to have made a certain number of qualifying years of NICs to be eligible for some state benefits and the State Pension.

There are some circumstances in which you can claim NI credits. In other circumstances, you can make voluntary NICs to fill in gaps on your NI record.