National Insurance (NI) is one of those deductions that quietly appears on your payslip every month. While it’s often lumped in with income tax, it’s actually a separate contribution that helps fund key state benefits including the State Pension.

In this post, we’ll cover who pays it, how much you pay, and smart ways to avoid paying more than you need to.

What is National Insurance?

National Insurance is a tax on earned income (like wages or self-employed profits). It goes towards:

• The State Pension
• Maternity/paternity allowance
• Unemployment benefits (e.g., Universal Credit)
• NHS funding (in part)

Who pays National Insurance?

You’re liable to pay NI if you are:

• Employed
• Self-employed
• Aged 16 or over
• Earning above certain thresholds

You stop paying NI when you reach State Pension age, which is currently 66.

National Insurance Rates 2025/26 (for Employees)

(These are employee contributions. Employers pay separate NI at 13.8% above £9,100 per year.)

Example:

• Emma earns £45,000 a year
• First £12,570 – no NI
• Next £32,430 taxed at 8% = £2,594.40
• No earnings above £50,270, so higher rate doesn’t apply

So Emma pays £2,594.40 in NI for the year which works out at practically £50 per week. This is in addition to her income tax.

Self-Employed? Here's how NI works for you

Self-employed individuals may pay two types of NI:

• Class 2 NI: £3.45 per week if profits are over £6,725 per year
• Class 4 NI:

- 6% on profits between £12,570 and £50,270

- 2% on profits above £50,270

These are usually paid via your Self-Assessment tax return.

Example:

What if Emma still earned £45,000 a year but was self-employed instead:

As a self-employed person, Emma pays two types of National Insurance:

1. Class 2 NI (a flat weekly rate) Since she earns above £6,725, she must pay this. Flat rate of £3.45 per week, X 52 weeks = £179.40 per year
2. Class 4 NI (a percentage of profits)

- First £12,570 = 0%

- Next £37,700 (£12,570 to £50,270) = 6% = £2,262

- No earnings above £50,270, so 2% rate doesn't apply

Meaning Emma’s total NI for the year is £2,441.40 which is £153 less than if she was employed.

What do I pay NI on?

Remember National Insurance and Income Tax are separate. It’s common to think they’re the same because both come off your salary, but:

• NI is only charged on earned income (e.g. wages, self-employment)
• NI is not charged on investment income, pensions, or property rental profits
• NI stops at pension age, but income tax does not 

Can you reduce your National Insurance bill and is there anything you should be doing?

• Use Salary Sacrifice Schemes

Exchanging part of your salary for pension contributions, cycle-to-work, or electric cars reduces NI as well as income tax.

• Maximise Tax-Free Allowances

Keep earned income below NI thresholds where possible and use alternative assets to provide an income such as ISAs, dividends or property income.

• Check Your NI Record for Gaps

You need at least 10 qualifying years to receive any State Pension, and 35 years for the full amount.

Use the government’s NI record checker to see if you’ve missed any years using this link.

• Voluntary Contributions (Class 3)

If you have gaps in your record, consider paying Class 3 contributions to top it up. 

This can be a cost-effective way to boost your future State Pension.

Final thoughts

National Insurance can feel like just another deduction, but it plays a big role in your future State Pension and welfare benefits. By understanding how it works and taking a few smart steps, you can avoid overpaying and protect your long-term finances.

If you’re unsure about your own situation, or you’re looking to become more tax-efficient, it’s always worth speaking to a financial adviser.

This article is for general information only and does not constitute financial or tax advice. National Insurance planning is not a regulated activity. Some strategies mentioned—such as salary sacrifice or use of tax-efficient investments—may involve regulated products. Always seek personalised advice before making financial decisions.