National Insurance (NI) is the second-largest deduction from your UK pay packet — sometimes larger than income tax for lower earners. Yet most people look only at income tax when comparing salaries. Understanding NI is essential for knowing your actual take-home pay, understanding your State Pension entitlement, and making smart decisions about salary sacrifice and pension contributions.
National Insurance Rates 2025-26
Employee NI (Class 1) — 2025-26
| Earnings Band (Annual) | Rate |
|---|---|
| Below £12,570 (Primary Threshold) | 0% |
| £12,570 to £50,270 (Upper Earnings Limit) | 8% |
| Above £50,270 | 2% |
Employer NI (Class 1 Secondary) — 2025-26
| Earnings Band (Annual) | Rate |
|---|---|
| Below £5,000 (Secondary Threshold) | 0% |
| Above £5,000 | 15% |
Note: The Employment Allowance (up to £10,500 for eligible employers from 2025) reduces employer NI bills for smaller businesses.
Self-Employed NI (Class 4) — 2025-26
| Profit Band (Annual) | Rate |
|---|---|
| Below £12,570 (Lower Profits Limit) | 0% |
| £12,570 to £50,270 (Upper Profits Limit) | 6% |
| Above £50,270 | 2% |
Class 2 NI (£3.45/week flat rate) was abolished from April 2024. Self-employed people now only pay Class 4 NI, and NI credits for State Pension are earned automatically through Class 4.
How NI and Income Tax Combine on Your Pay
For most employees, income tax and NI hit simultaneously but from different bases. Income tax uses your total income minus the personal allowance (£12,570). NI uses your earnings above the primary threshold (also £12,570 in 2025-26). But the rates are different and don't stack simply.
Combined Marginal Rates — What You Actually Keep
| Income Band | Income Tax Rate | Employee NI | Combined Marginal Rate | You Keep |
|---|---|---|---|---|
| Below £12,570 | 0% | 0% | 0% | 100p in £ |
| £12,570–£50,270 | 20% | 8% | 28% | 72p in £ |
| £50,270–£100,000 | 40% | 2% | 42% | 58p in £ |
| £100,000–£125,140 (PA taper) | 60% | 2% | 62% | 38p in £ |
| Above £125,140 | 45% | 2% | 47% | 53p in £ |
The £100K–£125,140 band is particularly painful: the personal allowance taper creates an effective 60% income tax rate, and NI adds another 2%, meaning you keep only 38p of every extra pound earned in this range.
Worked Salary Examples
Example 1 — £30,000 Salary
Income Tax: (£30,000 − £12,570) × 20% = £17,430 × 20% = £3,486
Employee NI: (£30,000 − £12,570) × 8% = £17,430 × 8% = £1,394
Total deductions: £4,880 | Take-home: £25,120/year (£2,093/month)
Example 2 — £55,000 Salary
Income Tax: £12,570 @ 0% + £37,700 @ 20% + £4,730 @ 40% = £0 + £7,540 + £1,892 = £9,432
Employee NI: £37,700 @ 8% + £4,730 @ 2% = £3,016 + £94.60 = £3,111
Total deductions: £12,543 | Take-home: £42,457/year (£3,538/month)
Example 3 — £100,000 Salary (Just Below the Trap)
Income Tax: £12,570 @ 0% + £37,700 @ 20% + £49,730 @ 40% = £27,432
Employee NI: £37,700 @ 8% + £49,730 @ 2% = £3,016 + £995 = £4,011
Total deductions: £31,443 | Take-home: £68,557/year (£5,713/month)
Salary Sacrifice: The Legal Way to Reduce Both Tax and NI
Salary sacrifice (also called salary exchange) lets you redirect part of your gross salary into pension contributions before tax and NI are calculated. This means you pay both income tax AND National Insurance on a lower salary — effectively getting tax relief at your marginal rate plus NI relief.
Salary Sacrifice Savings Example — £40,000 Salary, £200/month Pension
Without salary sacrifice: Pay pension from net pay. Tax + NI on £40,000 apply to the full £40,000.
With salary sacrifice: Effective salary drops to £37,600. Tax + NI calculated on £37,600.
Saving per year: £200/month × 12 = £2,400 pension contribution
Income Tax saved: £2,400 × 20% = £480
NI saved: £2,400 × 8% = £192
Total annual saving: £672 — meaning your £2,400 pension contribution only costs you £1,728 in take-home pay.
Employer also saves 15% × £2,400 = £360 in employer NI — many employers pass this saving back to employees as extra pension contribution.
NI and Your State Pension
Every year you earn above the Lower Earnings Limit (£6,396 in 2025-26) counts as a qualifying year for the State Pension. You need:
- 35 qualifying years for the full new State Pension (£221.20/week in 2025-26)
- 10 qualifying years minimum to receive any State Pension
- Years where you received NI credits (e.g., while claiming Child Benefit, Carer's Allowance, or certain benefits) also count
You can check your State Pension forecast on the government's Check Your State Pension service at gov.uk. Gaps in your NI record can be voluntarily filled by paying Class 3 voluntary NI contributions (£17.45/week for 2025-26).
Frequently Asked Questions
What is the NI rate for employees in 2025-26?
8% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270.
What is the employer NI rate for 2025-26?
15% on earnings above £5,000 per year per employee (up from 13.8% from April 2025).
Do you pay NI on pension contributions?
Salary sacrifice pension contributions reduce your NI-able pay so you pay less NI. Direct employee pension contributions don't reduce NI — only salary sacrifice does.
When do you stop paying National Insurance?
You stop paying employee NI at State Pension age (currently 66). Employers continue paying regardless of the employee's age.
Does NI count towards the State Pension?
Yes. 35 qualifying years of NI contributions or credits gives you the full new State Pension of £221.20/week in 2025-26.
What is the NI primary threshold 2025-26?
£12,570 per year — aligned with the personal allowance. No employee NI is payable on earnings below this level.
Sources: HMRC National Insurance rates (2025-26); HM Treasury Autumn Budget 2024; DWP State Pension rates. Educational purposes only — consult a tax adviser for personalised guidance.
Official Sources
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