What is national insurance?

National Insurance is a UK tax on earnings paid by workers, employers and the self-employed. It builds entitlement to the State Pension and some other benefits. In 2026/27 employees pay 8% on earnings between £12,570 and £50,270 and 2% above that, while employers pay 15% above £5,000.

National Insurance began in 1911 and was expanded after the Second World War to fund the welfare state. Today it is the second biggest tax after income tax. Despite its name, the money is not saved in a personal pot. It goes into the National Insurance Fund and is used to pay today's pensions and benefits. It was designed as a contributory insurance scheme.

Employees pay Class 1 contributions through PAYE. For 2026/27 the rate is 8% on weekly earnings between £242 and £967, and 2% above that. Employers pay 15% on each worker's earnings above £5,000 a year, though small firms can claim an Employment Allowance of £10,500. The self-employed pay Class 4 contributions at 6% and 2%. People over State Pension age stop paying employee contributions.

Each year you pay enough National Insurance counts as a qualifying year towards your State Pension. You need 35 qualifying years for the full new State Pension. People on certain benefits or caring for children can receive credits instead. Because pensioners and landlords do not pay it on their income, some economists argue it should be merged with income tax. Others defend the link to pensions.

Raises about £185bn. Paid by employees, employers and the self-employed on earnings only, not pensions or investments.

How it works

• Employee main rate: Cut from 12% to 8% in 2024. It only falls on earnings, so pensioners and landlords do not pay it, unlike income tax.
• Employee upper rate: The rate on earnings above the upper earnings limit. Its low level makes the combined marginal rate dip for higher earners.
• Primary threshold: Where employee NI starts. Aligned with the personal allowance since 2022, which simplified payslips.
• Upper earnings limit: Where the main rate drops to the upper rate. Raising it means more earnings face 8% instead of 2%, so it raises money.
• Employer rate: Raised to 15% in 2025. It is invisible on payslips, but evidence says most of it ends up in lower wages, higher prices and fewer jobs.
• Employer secondary threshold: Earnings per employee above which employers pay NI. Cut from £9,100 to £5,000 in 2025, hitting low paid, part-time jobs hardest.
• Employment allowance: Knocks this much off an employer's NI bill. Protects the smallest firms from employer NI rises.
• Self-employed Class 4 main rate: The self-employed pay less NI than employees and employers combined. Equalising is fairer but politically toxic, as 2017 showed.