National Insurance (NI) is often misunderstood — many people see it simply as a second income tax. While it does reduce your take-home pay, NI contributions build your entitlement to state benefits including the State Pension. Here's everything you need to know for 2025/26.
What is National Insurance?
National Insurance is a tax on earnings and self-employed profits. Unlike income tax, which funds general government spending, NI contributions theoretically fund specific benefits: the State Pension, statutory sick pay, statutory maternity/paternity pay, and contribution-based Jobseeker's Allowance.
In practice, NI goes into general government revenues, but your NI record directly affects your State Pension entitlement. You need 35 qualifying years to receive the full new State Pension (£221.20/week in 2025/26).
Class 1 NI: Employees
Class 1 National Insurance applies to employed workers. There are two components: employee contributions and employer contributions.
Employee NI Rates 2025/26
| Earnings Band | Rate | Annual Equivalent |
|---|---|---|
| Up to £12,570 | 0% | No NI |
| £12,571 – £50,270 | 8% | Max £3,016 |
| Above £50,270 | 2% | Uncapped |
Employer NI Rates 2025/26
Employers pay 15% NI on employees' earnings above £5,000 per year (the Secondary Threshold, which was cut from £9,100 in April 2025 — a significant increase for employers). There is also an Employment Allowance of £10,500 for eligible employers.
While employer NI doesn't appear on your payslip, it directly affects your total employment cost — and therefore what your employer can afford to pay you. On a £50,000 salary, your employer pays approximately £6,750 in NI on top of your salary.
Worked Example: £35,000 Salary
Class 2 and Class 4 NI: Self-Employed
From April 2024, Class 2 NI (the flat-rate weekly contribution of £3.45/week) was effectively abolished — self-employed people with profits above the Small Profits Threshold (£12,570) are treated as having paid Class 2 automatically, without any charge.
Class 4 NI still applies to self-employed profits:
- 6% on profits between £12,570 and £50,270
- 2% on profits above £50,270
Note that self-employed NI rates are lower than employed rates (6% vs 8% in the main band), partly because the self-employed do not receive certain benefits such as statutory sick pay or employer pension contributions.
NI and Your State Pension
Each tax year where you pay NI contributions (or are credited with them, e.g., during maternity leave or unemployment) counts as a "qualifying year". You need:
- 10 qualifying years for any State Pension entitlement
- 35 qualifying years for the full State Pension (£221.20/week in 2025/26)
You can check your NI record and State Pension forecast on your HMRC Personal Tax Account at gov.uk. If you have gaps, you may be able to pay voluntary Class 3 NI contributions to fill them.