Income

National Insurance Contributions: What You Need to Know

#Understanding National Insurance Contributions (NICs)

National Insurance Contributions (NICs) are payments made by employees and employers in the UK to fund state benefits, including pensions and the NHS. Knowing how NICs work can help you understand your payslip and manage your finances more effectively.

#Why Are NICs Important?

NICs are essential for maintaining your eligibility for certain state benefits, including the State Pension. Paying sufficient NICs throughout your working life ensures you qualify for these benefits when needed.

#Types of NICs

  1. Class 1 NICs: Paid by employees and employers on earnings such as wages and bonuses.
  2. Class 2 NICs: Paid by self-employed individuals at a flat weekly rate.
  3. Class 3 NICs: Voluntary contributions to fill gaps in your NI record.
  4. Class 4 NICs: Paid by self-employed individuals as a percentage of profits.

#Current NIC Rates (2025/26)

Notice: In the 2024 Autumn Budget, Chancellor Rachel Reeves announced that from 6 April 2025, the rate of employers’ NICs will increase from 13.8% to 15%. Additionally, the secondary threshold (the level at which employers start paying NICs) will be reduced from £9,100 to £5,000 per year.

  • Employee NICs:

    • 12% on earnings between £12,570 and £51,200 per year.
    • 2% on earnings above £51,200 per year.

  • Employer NICs:

    • 15% on earnings above £5,000 per year.

#How NICs Are Calculated

  1. Gross Income Assessment: Determine your total earnings, including bonuses and salary.
  2. Apply the NIC Thresholds: Calculate contributions based on your income falling within the specified bands.
  3. Deduct from Gross Pay: NICs are deducted before you receive your net salary.

#Example Calculation (2025/26)

If your annual salary is £40,000:

  • Employee NICs:
    • First £12,570: 0%
    • Next £27,430 (12% rate): £3,291.60
  • Employer NICs:
    • Earnings above £5,000 (15% rate): £5,250

#Impact on Your Payslip

Your payslip will show NICs as a deduction from your gross salary, reducing your take-home pay. It’s essential to understand this amount to get a clear picture of your actual earnings.

#Planning for NICs

Being aware of your NIC obligations helps you plan your finances better. Whether employed or self-employed, knowing how much you’re likely to pay can make budgeting easier and help you set realistic savings goals.