National Insurance contributions: What you pay and how to manage it

Published Monday 24 November 2025

Table of contents

• What are National Insurance contributions?
• Who pays National Insurance contributions
• National Insurance rates and thresholds
• How is National Insurance assigned?
• What are Category A National Insurance contributions?
• Employee National Insurance contributions
• Employer National Insurance contributions
• How to file National Insurance contributions with HMRC
• What is the National Insurance Employment Allowance scheme?
• Staying on top of National Insurance contributions
• FAQs on National Insurance contributions

Key takeaways

• Calculate National Insurance contributions using current rates and thresholds, which change annually, by checking HMRC updates regularly and using payroll software to automate deductions for employees earning above £12,570.

• Submit Full Payment Submissions (FPS) through your payroll system for each pay run and ensure payments reach HMRC by the 22nd of the following month to avoid penalties.

• Claim the National Insurance Employment Allowance of up to £5,000 annually if your previous year's Class 1 NI contributions were under £100,000, reducing your employer liability significantly.

• Maintain accurate records of employee National Insurance numbers and contribution histories while staying current with exemptions for employees under 21, apprentices under 25, and other qualifying categories.

What are National Insurance contributions?

National Insurance contributions (NICs) are mandatory taxes on earnings that fund state benefits like pensions and unemployment support. Both employees and employers pay National Insurance contributions (NICs) to HMRC based on earnings thresholds.

You must pay National Insurance if you're aged 16 to State Pension age and:

• Employed: earning above £12,570 in the 2023/24 tax year
• Self-employed:with profits of £12,570 or more in the 2023/24 tax year

Who pays National Insurance contributions

National Insurance is a tax on earnings that's paid by different groups in the UK. Your employment status determines whether you need to pay, and which type of National Insurance applies to you.

• Employees pay Class 1 National Insurance on their salary and bonuses.
• Employers also pay Class 1 National Insurance on their employees' earnings.
• Self-employed people pay Class 2 and Class 4 National Insurance, depending on their profits.

You generally start paying once you're 16 and earn or make a profit over a certain amount, and stop when you reach State Pension age.

National Insurance rates and thresholds

The amount of National Insurance you pay depends on your earnings, rates, and thresholds. These change each tax year, so check for updates regularly.

• Thresholds are the earning limits that determine when you start paying National Insurance, and at which rate. There are different thresholds, like the Primary Threshold for employees and the Lower Profits Limit for the self-employed.
• Rates are the percentages of your earnings that you pay in contributions. The rate you pay can change as your income passes different thresholds.

You can find the current rates and thresholds for employees, employers, and the self-employed on GOV.UK.

How is National Insurance assigned?

National Insurance classes determine the type and rate of contributions based on employment status. Each person gets a unique NI number to track their contribution record.

The main NI classes are:

• Class 1: employees and company directors
• Class 2: self-employed with lower profits
• Class 4: self-employed with higher profits
• Class 3: voluntary contributions to fill gaps

You must collect each employee's National Insurance number for your payroll records. HMRC uses this unique identifier to track their contribution history.

What are Category A National Insurance contributions?

The amount of National Insurance an employee pays depends on their category letter and income threshold. As an employer, you need to identify each employee's category letter to calculate your contributions.

Most employees fall under category A. Learn more about other National Insurance categories on GOV.UK.

Employee National Insurance contributions

Employee National Insurance contributions are deducted from wages above the primary threshold and paid to HMRC through your payroll system.

How employee contributions work

• Calculation: based on weekly earnings, deducted monthly or weekly
• Your responsibility:deduct from pay and forward to HMRC
• Verification: use HMRC's payroll calculators to check amounts

Company directors pay National Insurance on annual salary and bonuses above £12,570. They can choose to pay each pay period or once earnings reach the threshold.

Employer National Insurance contributions

Employer National Insurance contributions are secondary contributions you pay on top of employee deductions. Most employees over 21 fall under Category A rates.

Exceptions (no employer contributions required)

• Employees under 21: no employer NI on earnings up to £50,270
• Apprentices under 25: reduced rates apply
• Armed forces veterans: relief available for first year
• Freeport employees: zero rate in designated areas

Additional employer obligations

• Class 1A NICs: on benefits like company cars and private healthcare
• Termination payments: on amounts over £30,000
• Reporting: annual submission required by end of tax year

How to file National Insurance contributions with HMRC

Filing National Insurance contributions happens through PAYE using Full Payment Submissions (FPS) for each pay run.

Filing process

• Submit FPS: report deductions and payments through payroll software
• Check amount owed: view balance in your HMRC online account
• Make payment: pay by 22nd of following tax month
• Payment methods: bank transfer, direct debit, or cheque

What is the National Insurance Employment Allowance scheme?

The National Insurance Employment Allowance scheme lets eligible employers reduce their National Insurance liability by up to £5,000 each tax year.

You can claim it if your employer's Class 1 NI contributions were less than £100,000 in the previous tax year. As part of the scheme you'll pay less employer's National Insurance until the end of the tax year, or until the £5,000 allowance is up – whichever comes first.

The National Insurance Employment Allowance scheme doesn't apply to workers under IR35 (off-payroll workers), so their payroll costs don't count towards the £100,000 threshold. Each employer can claim this allowance only once under their PAYE scheme.

If you use Xero Payroll, you can claim the allowance at any time during the year using your payroll software.

Staying on top of National Insurance contributions

Managing National Insurance contributions effectively means staying current with rate changes, maintaining accurate records, and ensuring timely payments to avoid penalties.

Best practices for NI management:

• Monitor rate changes: check HMRC updates before each tax year
• Use payroll software: automate calculations and reduce errors
• Keep detailed records: maintain employee NI numbers and payment history
• Set payment reminders: ensure you meet the 22nd monthly deadline

Xero's cloud accounting software automates National Insurance calculations and filing, helping you stay compliant while you focus on growing your business. Try Xero for free to streamline your payroll management.

FAQs on National Insurance contributions

Here are some common questions small business owners have about National Insurance.

How much do I pay in National Insurance contributions?

The amount you pay depends on your employment status (employed or self-employed) and how much you earn. Use the specific rates and thresholds for the tax year to work out your contributions. Your payroll software can do this for you, or you can use HMRC's online tools.

How can I check if I've paid enough National Insurance?

You can check your National Insurance record online through your personal tax account on the GOV.UK website. This will show you any gaps in your contributions that could affect your State Pension and other benefits.

What happens if I make an error in my National Insurance calculations?

If you find you have paid the wrong amount of National Insurance, correct it as soon as possible. You can usually fix this in your next payroll run. For more complex issues, contact HMRC for guidance.

Can I get help managing National Insurance contributions?

Yes. Using payroll software like Xero automates National Insurance calculations and submissions to HMRC, saving you time and reducing the risk of errors. An accountant or bookkeeper can also provide expert advice and manage your payroll for you.