National Insurance Explained Simply

📚 This is a plain-English definitions guide. All rates and thresholds are drawn from HMRC and gov.uk official sources. This is not financial advice — see the disclaimer below.

National Insurance (NI) is a tax on your earnings — but it often confuses people because it works differently from income tax, has its own name and thresholds, and the rules keep changing. Here’s everything you need to know, with no jargon.

The simple version

National Insurance is a tax you pay on your earnings that goes towards the State Pension, the NHS, and certain benefits like Statutory Maternity Pay. Think of it as a separate contribution system running alongside income tax — you pay both at the same time, but they’re calculated differently and go to different places.

Who pays National Insurance?

Employees (Class 1): pay NI on earnings above the Primary Threshold (£12,570 per year in 2025/26). It’s deducted automatically from your pay via PAYE.
Employers (Class 1 Secondary): pay NI on top of your wages above the Secondary Threshold. This is a cost to your employer — it doesn’t come out of your take-home pay, but it makes employing people more expensive.
Self-employed (Class 4): pay NI through Self Assessment on profits above the Lower Profits Limit.

You stop paying NI when you reach State Pension age, even if you keep working.

How much National Insurance do I pay? (2025/26)

If you’re employed:

8% on earnings between £12,570 and £50,270 per year
2% on earnings above £50,270

For example: if you earn £30,000 a year, you pay 8% on £17,430 (the amount above £12,570). That works out at roughly £1,394 per year, or about £116 per month.

Your employer also pays 13.8% on your earnings above the Secondary Threshold (£5,000 per year in 2025/26) — that doesn’t come out of your wages but it’s part of the total cost of employing you.

What does National Insurance fund?

Your NI contributions build up your entitlement to:

State Pension: you need 35 qualifying years of NI contributions for the full new State Pension (currently £221.20 per week in 2024/25). You need at least 10 years for any State Pension at all.
NHS: a portion goes to funding healthcare.
Benefits: including Statutory Maternity Pay, Statutory Sick Pay, and contribution-based Jobseeker’s Allowance.

How is it different from income tax?

The key differences:

What it applies to: Income tax applies to almost all income — wages, savings interest, dividends, rental income. NI only applies to earnings from employment or self-employment.
Age: Income tax continues for life. NI stops at State Pension age.
Thresholds: They’re currently aligned (both start at £12,570), but this isn’t always the case — they’ve historically been different.
What it funds: Income tax goes into general government revenue. NI is nominally linked to specific benefits and the State Pension.

What is my NI number?

Everyone gets a National Insurance number automatically at age 16 (it arrives in the post a few months beforehand). It’s unique to you — in the format AB 12 34 56 C — and tracks your contributions throughout your working life. You’ll need it for any job, and when claiming certain benefits.

You can find yours on your payslip, P60, or by logging into the HMRC app.

Note: NI thresholds and rates are set by the government each year in the Autumn Budget and Spring Statement. FinanceSimply covers every announcement that affects your take-home pay the morning it’s made.

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Disclaimer: This guide is for informational purposes only and does not constitute financial advice. FinanceSimply is not regulated by the FCA. Tax rates and thresholds change each tax year — always verify with HMRC or a qualified adviser before making financial decisions.