National Insurance Explained
By C.G. Handley
National Insurance (NI) is a payroll deduction that appears on almost every UK payslip, but many people are not sure what it is for. This guide explains the basics in plain English.
What it is
National Insurance contributions help build your entitlement to certain benefits, including the State Pension. They are separate from income tax, although both are usually collected by your employer through payroll and passed to HMRC.
How employees pay it
Most employees pay Class 1 National Insurance. You start paying once your earnings pass a threshold, and pay a percentage of earnings above it, with a lower rate on earnings above a higher limit. The thresholds and rates are set by the government and can change, so check the current figures on GOV.UK. Your employer also pays National Insurance on your earnings, but this is separate and does not come out of your pay.
Your category letter
Your payslip shows a letter, such as A, which tells your employer which rate applies. Most employees are in category A. Other letters apply in specific situations, such as being under 21, over State Pension age or a certain type of worker. If you think yours is wrong, contact HMRC.
Self-employed people
If you are self-employed, you generally pay Class 4 contributions, based on your profits, through your Self Assessment tax return. Smaller profits may also involve Class 2 arrangements, which have changed over the years, so look at the current guidance.
What it counts towards
Paying NI, or being credited with it, builds up qualifying years. You normally need a minimum number of qualifying years to receive any new State Pension, and a higher number for the full amount. You can sometimes fill gaps by paying voluntary contributions, so it can be worthwhile to check.
How to check your record
You can view your National Insurance record and State Pension forecast using your online account on GOV.UK. Look for years marked as gaps, for example if you worked abroad, took a career break or were between jobs. Credits are available in some cases, such as when you receive Child Benefit or are caring for someone.
Common questions
- Do I pay NI on a second job? Usually yes, as each job is treated separately.
- Do I stop paying at State Pension age? Employees normally do, but employers still pay theirs.
- Why has my NI changed? Pay changes, threshold changes or a different pay period can all alter it.
Check how it appears on your payslip with our guide to reading your payslip.
This article is for general information only and is not financial or legal advice. For personal guidance, speak to a qualified adviser or an organisation such as MoneyHelper, Citizens Advice or ACAS.