National Insurance

National Insurance is a UK payroll deduction, separate from Income Tax, that funds specific state benefits — chiefly the State Pension. It's collected automatically through PAYE alongside Income Tax, so most employees never interact with it directly beyond seeing it itemised on their payslip.

Unlike Income Tax, which funds general government spending, National Insurance contributions build up your entitlement to certain benefits over your working life. See exactly how much comes out of your salary using the UK Take-Home Pay Calculator.

For the 2024/25 tax year, employee Class 1 National Insurance is calculated as:

NI = (min(earnings, Upper Earnings Limit) − Primary Threshold) × 8% + max(0, earnings − Upper Earnings Limit) × 2%

Where the Primary Threshold is £12,570 and the Upper Earnings Limit is £50,270 annually.

Someone earning £40,000 a year pays 8% on the amount between £12,570 and £40,000 — that's £27,430 × 8% = £2,194.40 in annual National Insurance. Someone earning £60,000 pays 8% up to the £50,270 Upper Earnings Limit (£3,016.00), plus 2% on the remaining £9,730 above it (£194.60), for a total of £3,210.60.

• The rate drops above the Upper Earnings Limit, not rises — many people assume NI works like Income Tax bands and gets steeper, but it actually falls from 8% to 2% once you cross £50,270.
• It stops entirely at State Pension age, unlike Income Tax which continues for as long as you have taxable income.
• Gaps in your NI record can reduce your State Pension. Years where you earned below the threshold or weren't working may not count as qualifying years unless you make voluntary contributions.
• Self-employed people pay a different class of NI with its own thresholds, calculated through Self Assessment rather than PAYE.
• Because NI comes off your salary before you see it, it's worth checking the combined effect of NI and PAYE deductions on the UK Take-Home Pay Calculator before committing to a monthly ISA contribution.