How Does National Insurance Work and Should You Be Paying It?
National Insurance contributions (NICs) are an essential part of the UK tax system, yet many people don’t fully understand how they work or whether they should be paying them. This guide breaks down everything you need to know about National Insurance, from the different classes to the current rates and thresholds.
What Is National Insurance?
National Insurance is a tax system in the UK that funds state benefits including the State Pension, Statutory Sick Pay, Maternity Leave, and unemployment benefits. Unlike income tax, National Insurance is a contributory system – your eligibility for certain benefits depends on your National Insurance contribution record.
Everyone in the UK who works and earns above certain thresholds must pay National Insurance until they reach state pension age. Your National Insurance number (NINO) is your personal identifier in this system.
The Different Classes of National Insurance
There are several classes of National Insurance, each applying to different types of workers:
Class 1 – Paid by employees earning more than the Primary Threshold (currently £12,570 per year for 2025/26). These contributions are automatically deducted from your salary by your employer.
Class 1A/1B – Paid by employers on benefits provided to employees and on Pay As You Earn (PAYE) Settlement Agreements.
Class 2 – Class 2 National Insurance contributions are considered paid automatically to help maintain your National Insurance record, so you don’t need to pay them yourself.
However, if your annual profits exceed £12,570, you’ll still be required to pay Class 4 contributions
Class 3 – Voluntary contributions that allow people to fill gaps in their National Insurance record.
Class 4 – Additional contributions paid by self-employed people with profits above the Lower Profits Limit (currently £12,570 per year).
Current National Insurance Rates
As of April 2025, the main National Insurance rates are:
For employees (Class 1):
- 8% on earnings between £12,570 and £50,270 per year
- 2% on earnings above £50,270 per year
For self-employed (Class 4):
- 6% on profits between £12,570 and £50,270 per year
- 2% on profits above £50,270 per year
Self-employed Class 2:
- £3.45 per week (for those with profits above £6,725)
Voluntary Class 3:
- £17.45 per week
Should You Be Paying National Insurance?
You should be paying National Insurance if:
- You’re an employee earning over £12,570 per year – Your employer will automatically deduct Class 1 contributions from your salary.
- You’re self-employed with profits over £6,725 – Your Class 2 NICs is considered to have been paid automatically, and if your profits exceed £12,570, you’ll also pay Class 4 NICs through your Self Assessment tax return.
- You’re working multiple jobs – Each employment is treated separately for National Insurance purposes. You might pay the standard rate on one job and the higher rate on others.
- You want to protect your State Pension – You need 35 qualifying years of National Insurance contributions to receive the full State Pension. If you’re not automatically paying NICs, you might consider making voluntary Class 3 contributions to avoid gaps in your record.
Who Doesn’t Need to Pay National Insurance?
You don’t need to pay National Insurance if:
- You’re under 16 years old
- You’re over state pension age (currently 66)
- You earn below the Lower Earnings Limit (currently £6,500 per year) as an employee
- You’re self-employed with profits below the Small Profits Threshold (£6,725)
National Insurance and Your State Pension
Your National Insurance record directly affects your State Pension entitlement. To receive the full State Pension (currently £230.25 per week), you need 35 qualifying years of National Insurance contributions.
If you have fewer qualifying years, your State Pension will be calculated proportionally. For example, with 20 qualifying years, you’d get 20/35 of the full amount.
You can check your National Insurance record online through the Government Gateway to see if you have any gaps that might affect your future State Pension.
How to Check If You’re Paying the Right Amount
It’s important to ensure you’re paying the correct amount of National Insurance. To check:
- Review your payslip if you’re employed – National Insurance contributions should be clearly listed
- Check your annual Self Assessment calculation if you’re self-employed
- Use the HMRC app or online service to view your National Insurance record
- Contact HMRC directly if you’re unsure
Making Voluntary Contributions
If you have gaps in your National Insurance record and are concerned about your State Pension, you might consider making voluntary Class 3 contributions. You can usually pay for gaps from the past six tax years.
Before making voluntary contributions, check whether:
- The gaps actually affect your State Pension forecast
- You might qualify for National Insurance credits that could fill the gaps without payment
- The cost of contributions outweighs the potential pension benefit
Recent Changes to National Insurance
National Insurance has seen several changes in recent years:
- The alignment of the National Insurance Primary Threshold with the Income Tax Personal Allowance (£12,570)
- Reduction in National Insurance rates for employees and self-employed in 2023 and 2024
- Introduction of the Health and Social Care Levy and its subsequent cancellation
- Changes to National Insurance for directors and those with multiple employments
Need Expert Help With National Insurance?
Understanding National Insurance can be complex, especially if you’re self-employed, have multiple income sources, or have gaps in your contribution record. Professional advice can help ensure you’re compliant while minimising your liabilities.
At FSL Accountancy Limited, we specialise in helping individuals and businesses navigate the complexities of the UK tax system, including National Insurance. Our expert accountants can:
- Review your National Insurance contribution history
- Advise on voluntary contributions and their value for your specific situation
- Help self-employed individuals properly calculate their NIC liabilities
- Ensure employers are handling their NIC obligations correctly
- Identify potential National Insurance planning opportunities
Don’t leave your National Insurance contributions to chance. Contact FSL Accountancy Limited today for personalised advice tailored to your specific circumstances. Our team will ensure you’re paying exactly what you should be – no more, no less.
