What Is NIC Tax: Classes, Rates, and How to Pay

National Insurance contributions are the United Kingdom’s social security tax, deducted from wages and self-employment profits to fund the State Pension, unemployment support, maternity benefits, and parts of the NHS. If you work in the UK and earn above certain thresholds, you pay automatically through your employer’s payroll or through Self Assessment if you work for yourself. What you owe depends on how much you earn and which class of contribution applies to you, and the record you build over your working life is what unlocks the State Pension and several other benefits later.¹

Every worker in the UK is issued a National Insurance number, a unique identifier that tracks your contributions throughout your life. You can find yours on your payslip, P60, or official correspondence from HM Revenue and Customs.²

Which Class Applies to You

NIC is split into classes, and which one you pay depends on how you earn.

Class 1 for Employees

If you’re an employee earning more than £242 a week from a single job, you pay Class 1.¹ Your employer deducts it from your gross pay before you see the money, so you never calculate or transfer it yourself. Your employer also pays its own, separate rate on your earnings above a lower threshold, and that cost comes out of the employer’s pocket rather than yours.

Class 2 and Class 4 for the Self-Employed

Self-employed workers deal with two classes. Class 2 is a flat weekly amount of £3.50 for 2025/26 that protects your benefit entitlements. If your annual profits reach £6,845 or more, Class 2 is treated as paid automatically. You don’t hand over the money, but you still get the qualifying credit on your record. If your profits fall below that level, you can choose to pay Class 2 voluntarily to avoid gaps.³

Class 4 is where the real bill lands: 6% on annual profits between £12,570 and £50,270, then 2% on anything above £50,270. Both classes are calculated and paid through the Self Assessment tax return.³ Unlike employees, you don’t get a matching employer contribution alongside yours, which is one reason self-employed pension outcomes can lag those of employees on similar earnings.

Class 3 Voluntary Contributions

If you have gaps in your record and don’t qualify to pay another class, you can make voluntary Class 3 payments at £17.75 per week for 2025/26.⁴ People who’ve taken career breaks, lived abroad, or earned below the Lower Earnings Limit often use Class 3 to protect their pension. Do the maths first: HMRC’s Future Pension Centre can tell you whether a specific gap actually reduces your pension before you spend money filling it.

A significant change took effect on 6 April 2026 for people living or working outside the UK. Voluntary Class 2 contributions from abroad were abolished, so the only option for overseas residents is now Class 3, at roughly five times the weekly cost. New applicants must also show either 10 continuous years of UK residency or 10 qualifying years already on their record.⁵

Employer Classes

Class 1A and Class 1B are paid entirely by employers on non-cash benefits like company cars or private medical insurance, at 15% for 2025/26.⁶ These don’t come out of your wages.

Current Rates and Thresholds

NIC doesn’t apply to the first pound you earn. Thresholds have been frozen since 2022, and the government confirmed they remain unchanged for 2026/27.⁷

For employees, the key figures are:

Lower Earnings Limit of £125 a week: earn at least this and the week counts toward your benefit entitlements, even though you pay no NIC yet.⁸
Primary Threshold of £242 a week: you start paying 8% on earnings between £242 and £967.
Upper Earnings Limit of £967 a week: above this, the rate drops to 2%.⁶

If you earn £1,000 in a week, you pay nothing on the first £242, then 8% (about £58) on earnings between £242 and £967, and 2% (about 66p) on the £33 above the upper limit.⁶

Employers pay 15% on each employee’s earnings above the Secondary Threshold of £96 a week, roughly £5,000 a year.⁸ That’s dramatically lower than the employee’s Primary Threshold, so the employer’s bill starts long before yours does. Eligible employers can offset up to £10,500 of their annual employer NIC through the Employment Allowance, which wipes out the bill for many small businesses.⁹

How It Gets Paid

Most employees never handle NIC themselves. Employers deduct it alongside income tax through the Pay As You Earn system before paying your net wages, and your payslip should show the deduction as a separate line.¹⁰ If you work multiple jobs, each employer calculates NIC independently based on that job’s earnings alone, which can sometimes lead to overpayment you’ll need to reclaim from HMRC.

If you’re self-employed, NIC is worked out as part of your annual Self Assessment tax return. You report your business profits on the SA103 supplementary pages, and HMRC calculates your Class 2 and Class 4 liability from those figures.¹¹ You pay it alongside your income tax bill, typically by 31 January after the end of the tax year, with a possible payment on account due 31 July.

Voluntary Class 3 contributions can be paid online by bank transfer or debit card through the HMRC portal. You’ll need the 18-digit reference number from your HMRC payment request to make sure the money reaches the right account.¹²

What Your Contributions Buy You

Your NI record directly determines whether you qualify for the State Pension, Maternity Allowance, Bereavement Support Payment, and contribution-based Jobseeker’s Allowance. Each year you earn enough or receive credits counts as a qualifying year.

The new State Pension, for anyone reaching State Pension age on or after 6 April 2016, requires at least 10 qualifying years before you receive anything. To get the full amount, £241.30 per week for 2025/26, you need 35 qualifying years.¹³ Each qualifying year between 10 and 35 adds a proportional slice, so even a few extra years can noticeably raise your weekly pension.

You stop paying NIC when you reach State Pension age. Employees are exempt from Class 1 immediately; self-employed workers stop paying Class 4 from the start of the tax year after they reach pension age.¹⁴ Income tax still applies to any earnings after that point.

National Insurance Credits

Not everyone earns enough to build qualifying years through paid work, and credits fill what would otherwise be gaps. Many are awarded automatically. You get credits without applying if you’re claiming Jobseeker’s Allowance, Employment and Support Allowance, Maternity Allowance, Carer’s Allowance, or Universal Credit. Parents and guardians registered for Child Benefit for a child under 12 also receive automatic Class 3 credits, even if their income is too high to actually receive the Child Benefit payment.¹⁵

Some credits need an application. A grandparent or family member who regularly cares for a child under 12 can ask the child’s parent to transfer their Child Benefit NI credit to them, a provision many families don’t know about. Foster carers, people caring for a sick or disabled person for at least 20 hours a week, and jurors on jury service can also apply.¹⁵

Checking Your Record and Filling Gaps

Your Personal Tax Account on GOV.UK gives you a digital view of your full NI record: how many qualifying years you have, any gaps, and a forecast of your projected State Pension. Reviewing it every few years is worth doing, because gaps caused by low earnings, time abroad, or career breaks compound and become more expensive to fill the longer you wait.

If you find gaps, check first whether you’re eligible for credits you haven’t claimed. Those cost nothing and are often overlooked. If credits don’t cover the gap, voluntary Class 3 contributions at £17.75 per week can fill it. Before paying, contact the Future Pension Centre to confirm the gap actually reduces your pension; not every gap matters, especially if you’ve already accumulated more than 35 qualifying years.⁵

Your payslip, P60 (issued at the end of each tax year), and P45 (issued when you leave a job) all record NIC deducted from your pay and serve as personal evidence if discrepancies arise.¹⁶

Penalties for Late Filing and Payment

Self-employed workers and anyone required to file Self Assessment face two separate penalty regimes, one for filing late and one for paying late. These are commonly confused, and the distinction matters.

Miss the filing deadline and HMRC charges an immediate £100 penalty regardless of how much tax you owe. After three months, daily penalties of £10 start accruing up to £900. At six months, a further penalty of 5% of the tax due or £300 (whichever is greater) is added, and the same again at twelve months.¹⁷

Late payment carries separate charges: 5% of unpaid tax at 30 days overdue, another 5% at six months, and another 5% at twelve months. On top of all penalties, HMRC charges interest on the outstanding balance at 7.75% (as of January 2026), running from the due date until you settle.¹⁸ Filing on time even when you can’t pay avoids the filing penalty and limits your exposure to the payment-side charges.

US Citizens Working in the UK

The United States and the United Kingdom have a totalization agreement, in force since 1985, designed to prevent workers from paying social security taxes to both countries on the same earnings.¹⁹ If a US employer sends you to the UK temporarily, you can apply for a Certificate of Coverage to stay in the US Social Security system and avoid paying NIC. Without that certificate, you’d owe NIC on your UK-sourced earnings like any other worker.

One point that catches many US expats off guard: the IRS does not allow a foreign tax credit for UK National Insurance. NIC is classified as a social security tax rather than an income tax, and the totalization agreement specifically addresses the overlap, so there’s no credit mechanism on your US return. If you’re a US citizen living permanently in the UK and paying NIC, those payments protect your UK State Pension entitlement but do nothing to reduce your US tax bill. Qualifying years under the totalization agreement can, however, be combined across both countries to meet the minimum eligibility thresholds for either nation’s pension system.

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GOV.UK. National Insurance Introduction
2
GOV.UK. National Insurance Introduction – Your National Insurance Number
3
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4
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GOV.UK. National Insurance Rates and Categories
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14
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15
GOV.UK. National Insurance Credits – Eligibility
16
GOV.UK. Your P45, P60 and P11D Form
17
GOV.UK. Self Assessment Tax Returns – Penalties
18
GOV.UK. HMRC Interest Rates for Late and Early Payments
19
Social Security Administration. U.S. International Social Security Agreements