National Insurance (NI) is a form of tax charged in the United Kingdom on employees, self-employed people and employers. Payment of this tax is usually referred to as a National Insurance Contribution (NIC). National Insurance is the Government of the United Kingdom's second-biggest source of revenue.
National Insurance is connected to the welfare state in the United Kingdom, since payment of NI contributions establishes entitlement to certain state benefits for workers and their families. The benefit component includes several contributory benefits, availability and amount of which is determined by the claimant's contribution record and circumstances. Weekly income and some lump-sum benefits are provided for participants upon death, retirement, unemployment, maternity and disability. In order to obtain the benefits which are related to the contributions, a National Insurance number is necessary.
Introduced by the National Insurance Act 1911 and expanded by the Attlee ministry in 1948, the system has been subjected to numerous amendments in succeeding years. Initially, it was a contributory form of insurance against illness and unemployment, and eventually provided retirement pensions and other benefits.
Currently, workers pay contributions from the age of sixteen years until the age they become eligible for the State Pension. NI Contributions are due from employed people earning above a threshold called the Primary Threshold, the value of which is reviewed each year; earnings between the Lower Earnings Limit and the Primary Threshold are credited as if contributions had been paid. Self-employed people contribute through a percentage of net profits above a threshold, which is reviewed periodically. Contributions are collected by HM Revenue and Customs (HMRC). For employees, this is done through the PAYE (pay-as-you-earn) system along with income tax, repayments of student loans and any apprenticeship levy which the employer is liable to pay. Individuals may also make voluntary NI Contributions to fill a gap in their contributions record and thus protect their entitlement to benefits.
History Creation
In the 1860s, proposals were made for a “State Friendly Society” linked to the Post Office. Historians Philip Corrigan and Derek Sayer identify among them an 1868 scheme by the Rev. John Young Stratton for insurance for the wage-paid classes through the Post Office.
The current system of National Insurance has its roots in the National Insurance Act 1911, which introduced the concept of benefits based on contributions paid by employed people and their employer. William Martin-Smith was issued with the First NI number A1. The chosen means of recording the contributions required the employer to buy special stamps from a Post Office and affix them to contribution cards. The cards formed proof of entitlement to benefits and were given to the employee when the employment ended, leading to the loss of a job often being referred to as being given your cards, a phrase which endures to this day although the card itself no longer exists.
Initially there were two schemes running alongside each other, one for health and pension insurance benefits (administered by "approved societies" including friendly societies and some trade unions) and the other for unemployment benefit which was administered directly by government.
Beveridge and post-war expansion
The Beveridge Report in 1942 proposed expansion and unification of the welfare state under a scheme of what was called social insurance. In March 1943 Winston Churchill in a broadcast entitled "After the War" committed the government to a system of "national compulsory insurance for all classes for all purposes from the cradle to the grave".
Following the Second World War, the Attlee government pressed ahead with the introduction of the Welfare State, of which an expanded National Insurance scheme was a major component. As part of this process, in 1948, a single stamp was introduced which covered all the benefits of the new Welfare State. At that point, responsibility passed to the new Ministry of National Insurance; many of the former approved societies went into liquidation as a result.
1975 onwards Stamp cards for class 1 (employed) contributions persisted until 1975 when these contributions finally ceased to be flat-rate and became earnings related, collected along with Income Tax under the PAYE procedures. Making NI contributions is still often described by people as paying their stamp.
As the system developed, the link between individual contributions and benefits was weakened.
Contributions The contributions component of the system, "National Insurance Contributions" (NICs) are paid by employees and employers on earnings, and by employers on certain benefits-in-kind provided to employees. The self-employed contribute through a percentage of net profits above a threshold. Individuals may also make voluntary contributions, in order to fill a gap in their contributions record and thus protect their entitlement to benefits. Contributions are collected by HM Revenue and Customs (HMRC) through the PAYE system, along with Income Tax and repayments of Student Loans and Postgraduate Loans.
People in certain circumstances, such as caring for a child, caring for a severely disabled person for more than 20 hours a week or claiming unemployment or sickness benefits, can gain National Insurance credits which protects their rights to various benefits.Understanding the basic State Pension http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/Basicstatepension/DG_10014671
National Insurance is a significant contributor to UK government revenues, with contributions estimated to comprise 18% of total revenue in the 2019/2020 financial year.
Contribution classes National insurance contributions (NICs) fall into a number of classes. Class 1, 2 and 3 NICs paid are credited to an individual's NI account, which determines eligibility for certain benefits - including the state pension. Class 1A, 1B and 4 NIC do not count towards benefit entitlements but must still be paid if due.
Class 1 Class 1 contributions are paid by employers and their employees. In law, the employee contribution is referred to as the 'primary' contribution and the employer contribution as the 'secondary', but they are usually referred to simply as employee and employer contributions.
The employee contribution is deducted from gross wages by the employer, with no action required by the employee. The employer then adds in their own contribution and remits the total to HMRC along with income tax and other statutory deductions. Contributions for employees are calculated on a periodic basis, usually weekly or monthly depending on how the employee is paid, with no reference to earnings in previous periods. Those for company directors are calculated on an annual basis, to ensure that the correct level of NICs are collected regardless of how often the director chooses to be paid.
There are a number of milestone figures which determine the rate of NICs to be paid. These are the Lower Earnings Limit (LEL), Primary Threshold (PT), Secondary Threshold (ST) and Upper Earnings Limit (UEL). Since April 2025 the Secondary Threshold has been set well below the Primary Threshold, so employers begin paying contributions at a lower level of earnings than employees. The cash value of most of these figures normally changes each year, either in line with inflation or by some other amount decided by the Chancellor, although the Primary Threshold, Secondary Threshold and Upper Earnings Limit have been frozen in recent years. The PT is normally indexed to inflation using the CPI, while other thresholds remain indexed using the RPI.
On earnings below the LEL, no NICs are paid and no benefit entitlement accrues. On earnings above the LEL, up to and including the PT, employee contributions are not paid but are credited by the government as if they were (enabling certain low-paid workers to qualify for benefits). On earnings up to and including the ST, employer contributions are not paid. On earnings above the PT (for employees) or ST (for employers), up to and including the UEL, NICs are collected at a rate which is determined by a number of factors: Whether the employee has reached the age at which State Pension becomes payable Whether the employee is a married woman paying reduced-rate contributions. This facility was abolished on 11 May 1977 but women who were already paying these contributions at that time were allowed to opt to continue to do so for as long as they remained married (or widowed) and in employment Whether the employee is an ocean-going mariner or deep-sea fisherman. In the case of the employer contribution, whether the employee is aged under 21, is an apprentice aged under 25, is an armed forces veteran in their first year of civilian employment, or works at a freeport or investment zone. On earnings above the UEL yet another set of rates apply, this time depending only on whether the employee has reached the age at which State Pension becomes payable or is an ocean-going mariner or deep-sea fisherman
Table letters As indicated above, the rates at which an individual and their employer pay contributions depend on a number of factors. Consequently, there are many possible sets of employer/employee contribution rates to allow for all combinations of the various factors. HMRC allocate a letter of the alphabet, referred to as an 'NI Table Letter', to each of these sets of contribution rates. Employers are responsible for allocating the correct table letter to each employee depending on their particular circumstances.
Each tax year, HMRC publish look-up tables for each table letter to assist with manual calculation of contributions, though these days most of the calculations are done by computer systems and the tables are available only as downloads. In addition, HMRC provide an online National Insurance Calculator.
Class 1A Class 1A contributions were introduced from 6 April 1991, and are paid by employers on the value of company cars and certain other benefits in kind provided to their employees and directors, at the standard employer contribution percentage rate for the tax year. Class 1A contributions do not provide any benefit entitlement for individuals.
Class 1B Class 1B contributions were introduced on 6 April 1999 and are payable by employers as part of a PAYE Settlement Agreement (an arrangement whereby the employer meets the tax liabilities on certain benefits). Class 1B contributions are paid at the same rate as Class 1A contributions and do not provide any benefit entitlement for individuals.
Contribution rates Contribution rates are set for each tax year by the government.
The general rates for the tax year 2026/27, between 6 April 2026 and 5 April 2027, are shown below. For those who qualify for the mariners rates, the employee rates are as shown below and the non-zero employer rates are 0.5% lower than those shown below.
+ Employees (2026/27) Weekly earningsStandardReduced (married women's election)Over State Pension age Up to £129 a weekn/an/an/a £129.01 to £242 a week0%0%0% £242.01 to £967 a week8%1.85%0% Over £967 a week2%2%0% + Employers (2026/27) Weekly earningsStandardUnder 21, apprentice under 25 or veteranFreeport or investment zone employee Up to £96 a week0%0%0% £96.01 to £481 a week15%0%0% £481.01 to £967 a week15%0%15% Over £967 a week15%15%15% Class 1A & 1B15%
The employer rate was increased from 13.8% to 15% and the Secondary Threshold was reduced from £9,100 to £5,000 a year from 6 April 2025. At the same time the Employment Allowance, which reduces the employer contributions payable by eligible employers, was increased to £10,500 a year.
Class 2