National Insurance (NI) is a UK tax paid by employees, employers and the self-employed, separate from income tax. Unlike income tax, which funds general government spending, National Insurance contributions are specifically linked to your entitlement to certain state benefits, most importantly the State Pension.
Why does National Insurance exist?
National Insurance was originally designed as a contributory system — the idea being that your contributions build up an entitlement to certain benefits, rather than being a general tax. Today it primarily determines your entitlement to the State Pension (see our full guide to the State Pension) as well as certain other contributory benefits such as Jobseeker's Allowance and Maternity Allowance.
Who pays National Insurance?
You pay National Insurance if you are an employee earning above a certain threshold, self-employed with profits above a certain threshold, or in some cases voluntarily, to fill gaps in your contribution record. You do not pay National Insurance if your income is below the relevant threshold, though you may still receive credits towards your record in certain circumstances, such as claiming Child Benefit or certain other benefits.
National Insurance classes
National Insurance is divided into different classes depending on your employment status. Class 1 is paid by employees and their employers, calculated as a percentage of earnings above a threshold. Class 2 was historically paid by the self-employed at a flat weekly rate, though recent reforms have changed how this applies — check current rules at gov.uk. Class 4 is paid by the self-employed as a percentage of profits above a threshold. Class 3 is the voluntary class, which anyone can pay to fill gaps in their NI record and protect their State Pension entitlement.
How is National Insurance calculated?
For employees, National Insurance is calculated separately from income tax, using its own thresholds and rates. There is a Primary Threshold below which no National Insurance is due, and contributions are then due at a set rate on earnings between the Primary Threshold and an Upper Earnings Limit, with a lower rate applying above that limit. The exact percentages and thresholds change periodically — always check current rates at gov.uk.
Unlike income tax, which is calculated on an annual basis, employee National Insurance is generally calculated per pay period, meaning your NI contribution is based on what you earn in that specific week or month, not averaged across the year.
How does National Insurance affect your State Pension?
Your entitlement to the State Pension depends on your National Insurance record — specifically, the number of qualifying years you have built up. You typically need at least 10 qualifying years to receive any State Pension, and 35 qualifying years to receive the full new State Pension. Gaps in your record — for example, from periods spent abroad, in full-time education, or out of work without claiming relevant benefits — can reduce your eventual State Pension. See our guide to the State Pension for more on how to check and fill gaps in your record.
What happens if you have multiple jobs?
If you have more than one job, National Insurance is generally calculated separately for each employment, which can sometimes result in paying more NI than someone earning the same total income from a single job. If you believe you have overpaid National Insurance due to multiple employments, it is possible to claim a refund from HMRC.
Self-employed National Insurance
If you are self-employed, National Insurance is calculated and paid through your self-assessment tax return alongside income tax — see our guide to self assessment for more detail on how this process works.