What is National Insurance? A guide for UK employers

Published Monday 29 June 2026

Table of contents

• What is National Insurance?
• Current employer National Insurance rates
• What to pay: how National Insurance contributions are determined
• Class 1A and Class 1B National Insurance contributions
• Employer National Insurance: what businesses need to know and do
• National Insurance relief for employers
• How to calculate National Insurance
• What happens if you don't pay National Insurance on time
• Simplify your National Insurance with Xero
• FAQs on National Insurance

Key takeaways

• The employer National Insurance rate is 15% on earnings above the Secondary Threshold of £96 per week (£5,000 per year) for 2026/27.
• You can claim Employment Allowance for up to £10,500 off your employer National Insurance bill each tax year.
• Calculate your employer contributions by applying 15% to each employee's earnings above the Secondary Threshold.
• Automate your National Insurance calculations and HMRC submissions using payroll software to save time and reduce errors.

What is National Insurance?

National Insurance (NI) is a UK tax on earnings that funds the State Pension, NHS, and other benefits such as maternity allowances. Both employees and employers pay it, and if you're self-employed, you pay your own contributions too.

There are three main groups of NI contributions. Employees pay Class 1 contributions, which are deducted from their wages through Pay As You Earn (PAYE). Employers pay a separate Class 1 contribution on top of each employee's earnings. Self-employed people pay Class 2 and Class 4 contributions through Self Assessment.

As a small business owner, your main responsibility is calculating and paying employer NI for your staff. You also need to deduct employee NI from their pay and report everything to HMRC.

Current employer National Insurance rates

For the 2026/27 tax year, the employer National Insurance rate is 15%. This applies to employee earnings above the Secondary Threshold of £96 per week (£5,000 per year).

The rate increased from 13.8% to 15% in April 2025. At the same time, the Secondary Threshold dropped from £9,100 to £5,000 per year. Together, these changes mean you pay more NI on a larger portion of each employee's earnings.

According to Xero Small Business Insights, UK small business wages grew 2.7% year on year as of late 2025. That means the higher NI rate compounds payroll costs for growing businesses. Staying on top of these figures helps you budget accurately.

What to pay: how National Insurance contributions are determined

The amount you pay depends on the class of NI, the thresholds that apply, and the NI category assigned to each employee. Understanding each factor helps you apply the right rate for every employee.

Classes of National Insurance

There are several classes of NI, each covering different types of workers and situations.

• Class 1: paid by employees (deducted from wages) and employers (paid on top of wages)
• Class 1A: paid by employers on most benefits in kind, such as company cars or private medical insurance
• Class 1B: paid by employers who have a PAYE Settlement Agreement (PSA) covering certain expenses and benefits
• Class 2: paid by self-employed people at a flat rate of £3.65 per week for 2026/27
• Class 3: paid voluntarily by individuals to fill gaps in their National Insurance record
• Class 4: paid by self-employed people on profits above a set threshold

As an employer, your main focus is Class 1 (employer contributions on employee earnings), plus Class 1A and Class 1B if you provide benefits or have a PSA.

National Insurance thresholds and rates

For 2026/27, the key thresholds and rates are as follows.

• Secondary Threshold (employer): £96 per week, £417 per month, £5,000 per year. You pay employer NI at 15% on earnings above this amount.
• Primary Threshold (employee): £242 per week, £1,048 per month. Employees start paying NI at 8% on earnings above this amount.
• Upper Earnings Limit (UEL): £967 per week, £4,189 per month. Employees pay a reduced rate of 2% on earnings above the UEL.
• Employer rate: 15% on all employee earnings above the Secondary Threshold, with no upper limit.
• Employee rates: 8% between the Primary Threshold and UEL, then 2% above the UEL.

National Insurance categories for your employees

Each employee is assigned an NI category letter. The category determines which NI rates and thresholds apply to them. You'll set this when you add an employee to your payroll.

• Category A: the standard category for most employees under State Pension age
• Category B: married women and widows with a valid reduced-rate election
• Category C: employees over State Pension age (currently rising from 66 to 67)
• Category H: apprentices under 25
• Category J: employees who can defer NI because they already pay in another job
• Category M: employees under 21

You can find the full list of category letters and their rates on GOV.UK.

Class 1A and Class 1B National Insurance contributions

If you provide benefits in kind to your employees, you'll need to pay Class 1A National Insurance on most of them. Common examples include company cars, private medical insurance, and interest-free loans above the threshold.

Class 1B contributions apply when you have a PAYE Settlement Agreement (PSA) with HMRC. A PSA lets you pay tax and NI on certain minor or irregular benefits on behalf of your employees, rather than reporting each one individually.

Both Class 1A and Class 1B are charged at 15% for 2026/27. Class 1A is due by 22 July following the end of the tax year (or 19 July if you pay by post). Class 1B is due by 22 October.

Employer National Insurance: what businesses need to know and do

Running payroll comes with specific NI obligations. You need to register as an employer, calculate contributions accurately, and report to HMRC on time.

Registering for National Insurance as a business

Before you hire your first employee, you must register as an employer with HMRC. You can do this up to two months before you start paying staff. HMRC will send you an employer PAYE reference number and an Accounts Office reference number.

You'll need these references to submit payroll reports, make NI payments, and claim Employment Allowance. Keep them safe; you'll use them every pay period.

National Insurance payment deadlines and reporting requirements

You must send a Full Payment Submission (FPS) to HMRC on or before each payday. The FPS includes details of employee earnings, tax, and NI deductions. Late FPS submissions can trigger penalties.

NI payments (along with income tax and student loan deductions) are due to HMRC by the 22nd of the following tax month if you pay electronically, or the 19th if you pay by post. You can check your payment schedule on GOV.UK.

As more businesses take on staff, getting your reporting processes right from the start saves you time and avoids penalties later.

National Insurance relief for employers

Several reliefs can reduce the amount of employer NI you pay. The most significant is Employment Allowance, but other exemptions may apply depending on your team.

Employment Allowance lets you reduce your employer NI bill by up to £10,500 per tax year. It increased from £5,000 in April 2025. At the same time, the previous £100,000 eligibility cap was removed, so more businesses now qualify.

You can claim Employment Allowance through your payroll software. It's applied automatically against your employer NI each pay period until the allowance runs out. You can't claim if your only employee is a director with no other staff.

If you employ apprentices under 25, you pay 0% employer NI on their earnings up to £967 per week (the Upper Secondary Threshold). This applies to apprentices on approved frameworks or standards.

If you're a director of your own limited company, you may also want to consider how you structure your salary and dividends. Many directors pay themselves a salary up to the Primary Threshold and take the rest as dividends. This can reduce both employer and employee NI. Speak with your accountant to find the right balance for your situation.

How to calculate National Insurance

Calculating NI for each employee involves matching their earnings against the correct thresholds and rates. This worked example uses an employee earning £3,000 per month under NI category A.

1. Identify the thresholds. The monthly Secondary Threshold (employer) is £417. The monthly Primary Threshold (employee) is £1,048. The monthly Upper Earnings Limit is £4,189.
2. Determine the NI category. This employee is under State Pension age with no special circumstances, so category A applies.
3. Apply the correct rates. Employer NI is 15% on earnings above £417. Employee NI is 8% on earnings between £1,048 and £4,189, then 2% above £4,189.
4. Calculate employee NI. £3,000 minus £1,048 equals £1,952. Multiply £1,952 by 8%. Employee NI is £156.16.
5. Calculate employer NI. £3,000 minus £417 equals £2,583. Multiply £2,583 by 15%. Employer NI is £387.45.
6. Check with an online calculator. Use the HMRC National Insurance calculator to verify your figures.
7. Report and submit to HMRC. Include both amounts in your FPS and pay the employer NI to HMRC by the deadline.

The total NI cost for this employee in this pay period is £543.61. That's £156.16 from the employee and £387.45 from you as the employer.

What happens if you don't pay National Insurance on time

Missing your NI payment deadlines can lead to penalties and interest charges from HMRC. The consequences get more serious the longer a payment is overdue.

HMRC may charge a penalty if your FPS is late. Penalties start from £100 per month for small employers and increase based on the number of employees. If your payment is late, HMRC charges interest on the outstanding amount from the due date until you pay.

Persistent non-compliance can lead to more severe action. HMRC may issue a determination (an estimate of what you owe) and pursue the amount as a debt. In extreme cases, deliberate failure to pay NI can result in prosecution.

The simplest way to avoid these issues is to submit your FPS on or before each payday and pay what you owe by the 22nd of the following month. Setting up automated payroll submissions helps you stay on track.

Simplify your National Insurance with Xero

Keeping up with NI rates, thresholds, and deadlines takes time. Getting it wrong can cost you in penalties and interest. Payroll software can help you stay accurate and compliant without the manual effort.

Xero Accounting Software can help you calculate employer and employee NI for each pay run through its payroll features. It applies the correct rates and thresholds based on each employee's NI category, so you spend less time looking up figures and doing manual sums.

You can also submit your FPS directly to HMRC from Xero, track your Employment Allowance, and generate P60s at year end. Getting your payroll set up correctly from the start means fewer penalties and more time for what matters. Try it yourself and get one month free.

FAQs on National Insurance

Here are answers to common questions small business owners ask about National Insurance.

How much does an employer pay in National Insurance?

For 2026/27, employers pay 15% on each employee's earnings above the Secondary Threshold. When budgeting for a new hire, factor in employer NI as an additional cost on top of their gross salary; for an employee earning £30,000, that's roughly £3,750 per year in employer NI alone.

Do employers have to contribute to National Insurance?

Yes. If you employ staff and pay them above the Secondary Threshold, you must pay employer National Insurance, deduct employee NI from wages, and send both amounts to HMRC.

What is the Employment Allowance and how do I claim it?

Employment Allowance gives you up to £10,500 off your employer NI bill each tax year. You can claim mid-year if you missed the start, backdating it to the beginning of the current tax year. You aren't eligible if your only employee is a company director with no other staff.

Can salary sacrifice reduce employer National Insurance costs?

Yes. When an employee gives up part of their salary in exchange for a benefit such as pension contributions or a cycle-to-work scheme, the sacrificed amount isn't subject to employer NI. This can lower your NI costs while giving employees valuable benefits.

Why is employer NI sometimes shown on payslips?

Some employers choose to show their NI contribution on payslips for transparency, helping employees see the total cost of their employment. There's no legal requirement to include it, but it can be a useful way to demonstrate the full value of the package.