National Insurance · UK guide · Updated May 2026
National Insurance explained: rates, classes, and how it works.
Written by Iftikhar Rashid FCCA. [VERIFY all rates at 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. [VERIFY all rates at gov.uk/national-insurance]
National Insurance classes [VERIFY]
| Class | Who pays | Rate [VERIFY] | Based on |
|---|---|---|---|
| Class 1 (Employee) | Employees | [VERIFY at gov.uk] | Earnings above Primary Threshold |
| Class 1 (Employer) | Employers | [VERIFY at gov.uk] | Employee earnings above Secondary Threshold |
| Class 4 | Self-employed (sole traders, partners) | [VERIFY at gov.uk] | Profits above Lower Profits Limit |
| Class 2 | Self-employed (limited circumstances from April 2024) | [VERIFY — mostly abolished April 2024] | Flat rate (where still applicable) |
[VERIFY current rates and thresholds at 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. [VERIFY: current rates at gov.uk/national-insurance]
What are the National Insurance rates in 2026?
NI rates change each April. Employee Class 1 NI is paid on earnings above the Primary Threshold. Employer Class 1 NI is paid on earnings above the Secondary Threshold. Self-employed people pay Class 4 NI on profits above the Lower Profits Limit. Class 2 NI (a flat weekly rate) for the self-employed was abolished for most people from April 2024 — check gov.uk for current rules. [VERIFY all rates at gov.uk/national-insurance]
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 the employer's NI liability by up to a set amount per tax year [VERIFY current limit at gov.uk]. 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. [VERIFY current Employment Allowance rules and limit at gov.uk]
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. [VERIFY: current State Pension qualifying year rules at gov.uk]
Questions about NI and your business?
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