What Is National Insurance in the UK?
If you live and work in the UK, you’ve probably heard of National Insurance (NI)—a regular deduction from your wages or self-employed earnings. But what exactly is National Insurance, and why do we pay it?
In simple terms, National Insurance is a tax system that funds key state benefits such as the State Pension, Maternity Allowance, and certain unemployment and sickness benefits. It’s a critical part of the UK’s welfare system, and almost every working person contributes to it in some form.
Why Do We Pay National Insurance?
National Insurance contributions (NICs) help fund:
- The State Pension
- The NHS
- Maternity and paternity pay
- Statutory sick pay
- Jobseeker’s Allowance and other benefits
Paying into the system helps you qualify for these benefits when you need them. For example, to receive the full new State Pension, you’ll usually need at least 35 qualifying years of contributions.
Who Pays National Insurance?
You’ll need to pay National Insurance if you:
- Are 16 or older
- Are an employee earning more than £1,048 per month (as of 2025)
- Are self-employed and make a profit of £6,725 or more per year
Even if you’re not working, you may choose to make voluntary contributions to fill gaps in your NI record, especially to protect your State Pension entitlement.
Types of National Insurance
There are several classes of National Insurance, depending on your employment status:
- Class 1: Paid by employees and employers via PAYE
- Class 1A/1B: Paid by employers on benefits like company cars
- Class 2: Paid by self-employed people (flat weekly rate)
- Class 4: Paid by self-employed people on profits over a certain threshold
- Class 3: Voluntary contributions to fill gaps in your record
Each class has different thresholds and rates, which HMRC updates annually.
How Much Do You Pay?
As of the 2025/26 tax year:
- Employees (Class 1): Pay 8% on earnings between £1,048 and £4,189 per month, and 2% above that.
- Self-employed (Class 2 and 4):
- Class 2: £3.45 per week
- Class 4: 6% on profits between £12,570 and £50,270, and 2% above that
Employers also pay NICs on behalf of their employees, which adds to the cost of hiring staff.
Where Does It Show Up?
If you’re employed, National Insurance is automatically deducted from your wages and shown on your payslip. If you’re self-employed, you’ll pay it via your Self Assessment tax return.
Final Thoughts
National Insurance is an essential part of the UK’s social safety net. While it may feel like just another tax, your contributions directly support vital services and help secure your future, including your State Pension and access to certain benefits.
Understanding how NI works ensures you stay compliant and make informed decisions about your financial future—especially if you’re self-employed, approaching retirement, or have gaps in your contribution history.
📍Whether you’re based in Cambridge or Nottingham, GMS Accountants can help you make sense of your National Insurance contributions, tax planning, and business finances.
💬 Get expert advice today — visit gms-accountants.co.uk or call your local GMS team.
