National Insurance · UK guide · Updated May 2026
National Insurance explained: rates, classes, and how it works.
Written by Iftikhar Rashid FCCA. Source: gov.uk/national-insurance.
What is National Insurance?
National Insurance (NI) is a UK tax on earnings and profits that funds the State Pension and certain state benefits. Employees pay Class 1 NI on earnings above the Primary Threshold. Employers pay Class 1 NI on earnings above the Secondary Threshold. Self-employed pay Class 4 NI on profits. Dividends do not attract NI — which is central to the salary/dividend strategy for company directors. Source: gov.uk/national-insurance.
National Insurance classes
| Class | Who pays | Rate | Based on |
|---|---|---|---|
| Class 1 (Employee) | Employees | 8% to £50,270 / 2% above | Earnings above £12,570 Primary Threshold |
| Class 1 (Employer) | Employers | 15% | Employee earnings above £5,000 Secondary Threshold |
| Class 4 | Self-employed (sole traders, partners) | 6% to £50,270 / 2% above | Profits above £12,570 Lower Profits Limit |
| Class 2 | Self-employed | Mostly abolished April 2024; voluntary only | Voluntary contributions to protect state pension entitlement |
Source: gov.uk/national-insurance.
FAQs
What is National Insurance?
National Insurance (NI) is a tax paid by UK employees, employers, and the self-employed. It funds the State Pension, NHS contributions, and certain state benefits. The amount you pay depends on your earnings and employment status. Different classes of NI apply: Class 1 for employed people, Class 2 and 4 for self-employed, employer Class 1 for businesses.
What are the National Insurance rates in 2026/27?
Employee Class 1 NI: 8% on earnings between £12,570 and £50,270, 2% above £50,270. Employer Class 1 NI: 15% on employee earnings above the £5,000 Secondary Threshold (post-April-2025 reform). Self-employed Class 4 NI: 6% on profits between £12,570 and £50,270, 2% above £50,270. Class 2 NI (a flat weekly rate) for the self-employed was abolished for most people from April 2024 but remains as a voluntary contribution to protect state pension entitlement.
How does National Insurance affect limited company directors?
Directors who take salary from their company pay Class 1 employee NI on salary above the Primary Threshold. The company pays employer Class 1 NI on salary above the Secondary Threshold. Dividends do not attract NI for either party — which is why the salary-plus-dividends strategy is tax-efficient for directors. Setting salary at or just below the NI threshold eliminates NI while still building the State Pension record.
What is the Employment Allowance?
The Employment Allowance reduces an employer's Class 1 NI liability by up to £10,500 per tax year. It is available to most businesses and charities but not to single-director companies where the director is the only employee. If an eligible company has additional employees, the Employment Allowance can be claimed — and changes the optimal salary calculation for director remuneration.
Do National Insurance contributions qualify you for the State Pension?
Yes. UK State Pension entitlement depends on having a minimum number of qualifying years of National Insurance contributions (or credits). Salary above the Lower Earnings Limit (even if no actual NI is paid) counts as a qualifying year. This is why setting a director's salary at the NI threshold rather than zero preserves the State Pension record without triggering NI costs.
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