National Insurance is calculated on your gross pay, in parallel with Income Tax rather than before or after it. Both deductions start from the same gross figure for the pay period, and each is worked out independently, so neither one reduces the base the other is charged on. Your employer subtracts both before the money reaches your account, which is why they show up as separate lines on your payslip.
Two Deductions, One Gross Figure
A common assumption is that payroll works down a ladder: Income Tax first, then National Insurance on whatever survives. It doesn’t. Your employer takes your gross earnings for the pay period and runs two separate calculations against that same number. One produces your Income Tax. The other produces your NI. Neither result feeds into the other.
Your payslip mirrors this. Gross pay sits at the top. Income Tax and National Insurance appear below as independent deductions. What lands in your bank account is what remains after both come off, along with pension contributions or anything else you’ve agreed to. The order they’re printed in is just formatting; there is no sequence where one must be worked out before the other.
The practical consequence is that your NI bill is tied to what you earn, not what you keep. Increasing your tax code allowance, for example, cuts your Income Tax but leaves your National Insurance untouched.
What Counts as the Gross Pay NI Is Charged On
For the 2026-27 tax year (6 April 2026 to 5 April 2027), employees pay Class 1 National Insurance based on gross earnings in each pay period. The thresholds are set weekly, and your employer converts them to monthly or annual figures depending on how often you’re paid.
- Lower Earnings Limit (£129 per week): earn at least this amount and you start building your NI record, though you don’t pay anything yet.
- Primary Threshold (£242 per week): the point at which contributions start. Earnings between here and the Upper Earnings Limit are charged at 8%.
- Upper Earnings Limit (£967 per week): the rate drops to 2% on earnings above this point.
These figures apply to Category A, which covers most employees. Other category letters exist for groups such as apprentices under 25, employees under 21, and veterans, but the employee rates for those categories are generally the same.1GOV.UK. Rates and Thresholds for Employers 2026 to 2027
Your employer also pays NI on your earnings, at 15% on anything above £96 per week (£5,000 a year) for 2026-27. That employer cost is separate. It doesn’t appear as a deduction from your pay and doesn’t affect what you take home directly.1GOV.UK. Rates and Thresholds for Employers 2026 to 2027
The gap between the Lower Earnings Limit and the Primary Threshold is worth knowing about. If you earn between £129 and £242 per week, you pay nothing but still get a qualifying year credited toward your State Pension. Earning below £129 a week means that employment doesn’t count toward your record at all.1GOV.UK. Rates and Thresholds for Employers 2026 to 2027
Salary Sacrifice: The Legitimate Way to Shrink the NI Base
Because NI is charged on gross pay, the only way to lower the amount it’s calculated on is to lower the gross pay itself. Salary sacrifice is the recognized route. You agree with your employer to give up part of your cash salary in exchange for a non-cash benefit, such as higher employer pension contributions, a cycle-to-work bike, or additional annual leave. The sacrificed amount never counts as your earnings, so NI is worked out on the reduced figure.
An example: you earn £40,000 and sacrifice £5,000 into your employer’s pension scheme. Your National Insurance is now calculated on £35,000 rather than £40,000. Your employer also pays less NI on your earnings, which is why many employers are willing to run these schemes. The arrangement has to be documented in your employment contract before the earnings are due; it can’t be applied retrospectively to pay you’ve already received.2GOV.UK. Salary Sacrifice for Employers
One caution. Reducing your gross pay through salary sacrifice can push your earnings below the Lower Earnings Limit if you’re already a lower earner, which could damage your NI record and affect benefit entitlements. Most schemes have safeguards against this, but check before you opt in.
If You’re Self-Employed, the Same Principle Applies
Self-employed National Insurance works differently in mechanics but on the same logic. Rather than being taken from each payslip, contributions are calculated on your annual profits (self-employed income minus allowable expenses) and settled through your Self Assessment tax return.
For 2026-27, two classes apply:
- Class 2 (£3.65 per week): if your profits are £7,105 or more, contributions are treated as paid automatically to protect your NI record, so you don’t hand over the money. If profits are lower, you can pay Class 2 voluntarily to keep building qualifying years.3GOV.UK. Self-Employed National Insurance Rates
- Class 4: 6% on profits between £12,570 and £50,270, then 2% on anything above £50,270.3GOV.UK. Self-Employed National Insurance Rates
The core rule holds. Your NI is calculated on your profits, and your Income Tax is calculated on your profits, both against the same figure. One does not reduce the other.
When National Insurance Stops Altogether
Once you reach State Pension age, you generally stop paying National Insurance even if you carry on working. Your employer should stop deducting it, though you may need to provide proof of your age. Income Tax on your earnings continues as normal. If you’re self-employed, Class 2 and Class 4 also stop at State Pension age.4GOV.UK. National Insurance and Tax After State Pension Age – Stopping Paying National Insurance
That’s the one situation where the relationship between NI and Income Tax breaks apart on the payslip: you’ll see Income Tax coming off, but the NI line disappears. Everything else about how the two deductions relate stays the same throughout your working life. They run alongside each other, on the same gross figure, and neither one waits for the other.