National Insurance Contributions (NICs) are compulsory levies collected by HMRC that fund state benefits including the State Pension, Statutory Sick Pay, Statutory Maternity Pay, and the NHS. Contributions are classified by class: Class 1 covers employees and employers on earnings above the Lower Earnings Limit; Class 1A and 1B apply to employers on taxable benefits in kind; Class 2 covers self-employed individuals at a flat weekly rate; and Class 4 applies to self-employed profits above the Lower Profits Limit.
For 2025-26, employee Class 1 NICs are charged at 8% on weekly earnings between the Primary Threshold and the Upper Earnings Limit, with 2% above that limit. Employer Class 1 NICs are charged at 15% on earnings above the Secondary Threshold, which was reduced from £9,100 to £5,000 per year from April 2025. The employer rate also increased from 13.8% to 15% in April 2025, raising payroll costs materially for businesses with large headcounts. The Employment Allowance, which offsets employer NICs, increased to £10,500 for 2025-26.
Qualifying NIC years count towards an individual's State Pension entitlement. Workers with gaps in their record may make voluntary Class 3 contributions to fill them. Employees earning below the Lower Earnings Limit receive a notional NIC credit, preserving their qualifying year without an actual deduction. Employers must calculate, report, and remit both employee and employer contributions through the PAYE system on each pay date.