In the UK, most employees will have deductions for National Insurance (“NI”). How is this amount calculated, and what is it used for? In this article, I will explain how NI works. By the end, you’ll understand its significant impact on the State Pension system.
Table of Contents
What is National Insurance?
National Insurance (NI) is essentially a contribution you make to the government. Once you turn 16, whether employed or self-employed, you need to start paying NI. Employers also have to contribute to NI. You must have sufficient NI Contributions to be eligible for the State Pension and the following benefits:
- Contribution-based Jobseeker’s Allowance
- Contribution-based Employment and Support Allowance
- Maternity Allowance
- Bereavement Support Payment
When do you need to pay NI?
For most employees in the UK, payments are deducted automatically through the “Pay As You Earn” (PAYE) system. This means that every time you get paid, deductions for Income Tax and NI are automatically made.
For self-employed individuals, you will need to file a tax return annually to HMRC (Her Majesty's Revenue and Customs). After receiving the return, HMRC will collect the Income Tax and NI from you. However, if you continue working after reaching retirement age, your earnings will not be subject to NI deductions.
The main NI categories are:
- Class 1: Paid by employees
- Class 1A/1B: Paid by employers
- Class 2: Paid by self-employed individuals (if earnings exceed £6,725 per year)
- Class 3: Voluntary contributions
- Class 4: Paid by self-employed individuals (if earnings exceed £11,909 per year)
Today, I will mainly focus on NI contributions paid by employees (Class 1).
What is the money used for?
The NI contributions deducted from your salary are pooled together by the government to fund various social welfare programs. These include the State Pension, statutory sick pay, maternity leave benefits, unemployment benefits, and the National Health Service (NHS).
How is NI calculated?
The frequency of your payments (whether weekly or monthly) affects how NI is calculated. Here are the details:
a) Employees paid weekly
2025年4月6日起，Primary threshold維持係每星期£242，賺取呢個數或以上，就要繳交 NI。£242同£967之間嘅薪金部分，會扣除8% 以作NI 之用，超出£967 嘅薪金部分，會扣除2% 以作NI 之用。
Example 1: If I receive a weekly gross pay of £290, the NI deduction would be:
(290-242) x 8%
= £3.84
b) Employees paid monthly
2025年4月6日起，Primary threshold維持係每個月賺取£1,048，賺取呢個數或以上，就要繳交 NI。£1,048同£4,189之間嘅薪金部分，會扣除8% 以作NI 之用，超出£4,189 嘅薪金部分，會扣除2% 以作NI 之用。
Example 2: If I receive a monthly gross pay of £1,200, the NI deduction would be:
(1200-1048) x 8%
= £12.16
Official Calculator
There is an official NI calculator available at the following website:
http://nicecalculator.hmrc.gov.uk/Class1NICs1.aspx
If you are just using it to calculate your NI contributions, you can generally select Category A or M in the NICs Category letter field.
How is NI calculated if you have multiple jobs?
One thing to note is that NI works differently from Income Tax. Income Tax is calculated based on your total income from all jobs combined. For instance, if you earn £10,000 from one job and £15,000 from another, Income Tax will be calculated on the combined total of £25,000. However, NI is calculated separately for each job. So, if you work two different jobs for different employers, you will need to pay NI on each job separately based on the income from that job. Additionally, you cannot combine the salaries from both jobs to obtain NI Credits.
Example:
塵生喺超市有一份工，每個星期出一次糧，薪金為£100。另外係速遞公司返另一份工，都係每個星期出一次糧，薪金為£100。雖然兩份工加埋每星期會有£200，大於獲取 NI Credit 嘅門檻，即 Lower Earnings Limit (Weekly) – £125，但由於 NI 係每份工獨立咁睇，所以塵生仍然係獲取唔到任何嘅 NI Credit。
However, if both jobs are with the same employer (e.g., working at two branches of the same supermarket), then the earnings from both jobs can be combined for NI Credit purposes.
How is NI handled for low-income earners?
If your income doesn’t reach the Primary Threshold mentioned earlier (£242/week for weekly-paid employees or £1,048/month for monthly-paid employees), you won’t need to pay NI. But will you still receive NI Credits?
Yes, you can still receive NI Credits if your earnings exceed the Lower Earnings Limit. If your salary is between the Lower Earnings Limit and the Primary Threshold, you will get NI Credits without having to make any deductions.
a) Employees paid weekly
2025-2026年稅務年度嘅 Lower Earnings Limit (Weekly) 為£125，如果薪金介乎於£125與£242之間，咁大家就喺唔扣錢嘅情況下，自動獲得 NI Credit。
b) Employees paid monthly
2025-2026年稅務年度嘅 Lower Earnings Limit (Monthly) 為£542。如果薪金介乎於£542與£1048之間，咁大家就喺唔扣錢嘅情況下，自動獲得 NI Credit。
Can you get NI Credits without working?
Yes, under the current system, there are several ways to get NI Credits without being employed. For example, families receiving child benefit can get NI Credits for the parent claiming the benefit until their child turns 12. Additionally, those receiving Universal Credit also qualify for NI Credits. You can check the official website for more eligibility details:
https://www.gov.uk/national-insurance-credits/eligibility
However, it’s important to note that some benefits are considered public funds, and BNO visa holders must have permanent residency before applying.
If you want to learn more about the public finds, you can refer to the article: What is public funds in the UK?.
Conclusion
National Insurance is a key element in securing a State Pension upon retirement. Hopefully, this article has helped you better understand how much is deducted from your salary and where that money goes.
If you want to learn more about the UK’s pension system, you can refer to the article:State Pension (2022) | Understanding the UK’s Pension Scheme..
Happy Sharing
If you like what we have shared, keep watching my blog and share it with your friends!
(The above information is for reference only. Please refer to the official website for everything.)
21 comments
Hello, I have a few questions regarding income tax and National Insurance (NI). I have a friend who worked in a restaurant as a kitchen staff starting in September 2022. The owner didn't ask for any personal information, including NI. My friend was hired as part-time, and the owner paid weekly, calculated by hourly wage. My friend worked around 22 hours a week, at £10 per hour, so about £220 per week, which was transferred via bank. The owner didn't deduct any tax. My friend worked for just over two months and then left. During these two months, my friend also worked for another company for two days on a trial basis before resigning. This company also didn't ask for personal details, and later it was discovered that they hired my friend as self-employed. My friend received £150 through a bank transfer about a month and a half later, and it seems like no tax or NI was deducted. I'd like to ask, in this case, does my friend need to report and pay taxes?
Thank you for your reply.
Please note We are not a tax expert. For tax matters, it's best to consult a tax advisor. The following is just for your reference.
If you want to check whether you need to file a tax return, you can visit this website to verify.
https://www.gov.uk/check-if-you-need-tax-return
How long do you need to contribute to NI before you can withdraw? Thank you.
Actually, NI is just a "ticket" to accumulate qualifying years for State Pension. The amount you contribute doesn't directly affect how much you get in the future. Even if someone never paid a single pound of NI, it doesn't mean they won’t receive a State Pension. Similarly, paying £10,000 in NI before retirement doesn't guarantee you'll get that same amount back in pension.
To receive the State Pension, you need a minimum of 10 qualifying years. You can refer to another article of mine for more details – UK State Pension | A Guide to Understanding the UK Long-Term Pension.
Thank you for your informative article, I now understand more about State Pension. Could you please explain Voluntary National Insurance Contributions? I work part-time and may not qualify for a qualifying year, so I’m considering using the voluntary contributions scheme.
Thank you for your support! If someone has no work income at all, the cost of Voluntary National Insurance Contributions (VNIC) is £15.85 per week. If you do have income during the fiscal year, the cost of VNIC will be reduced proportionally. You can log into the Government Gateway to see the specific amount for each fiscal year.
Thank you for the explanation. I have another question regarding voluntary contributions. Are housewives categorized under Class 3?
You’re welcome. Yes, Voluntary National Insurance Contributions to fill in NI gap years are considered Class 3.
Hello, I have a question regarding company cars. If a company car is provided and there’s no private use at all, does the employee still need to pay car tax? I saw an example from HMRC where even after deducting private use, a tax rate of 40.2% was still applied. This example is quite confusing. Thank you.
Hello, apologies, I don’t own a car, so I’m not very familiar with vehicle-related issues. For tax-related matters, I recommend consulting a professional.
Hello !
I would like to clarify: if I move to the UK and have no employment at all, would I still be eligible to purchase Voluntary National Insurance Contributions (VNIC) until I reach retirement age? Can I purchase contributions for the past two years? Thanks.
Hello, if you have no work, you are eligible to buy VNIC. However, it’s best to do the math first to determine whether it's worth it. Assuming there’s no price increase, buying 10 years would cost £8,242, and the state pension is approximately £3,286.4 per year, so you would break even after around two and a half years of retirement. You can purchase contributions for the past six tax years to cover any National Insurance credit gaps, but you cannot purchase for the years before you moved to the UK.
With a monthly salary of £533, which is £6,396 per year, I understand that the employee doesn’t need to contribute and can receive National Insurance credits. What about the employer? Do they need to make contributions on this salary?
Employers have a different threshold, called the Secondary Threshold (for 2023/24 it’s £175 per week / £758 per month). Contributions are required only if the salary exceeds this threshold. For more details, you can refer to the official website: Rates and allowances: National Insurance contributions.
Hello, if I have a full-time job and am also self-employed, are both jobs taxed separately? Thanks!
Hello, for Income Tax, the total income from both jobs is combined to calculate the tax. For National Insurance, however, the two jobs are calculated independently. Thanks.
Please note that the above information is for reference and personal sharing only, not professional advice. For any in-depth questions, it’s best to consult relevant professionals.
Hello! I’d like to ask, if I move to the UK but continue working remotely for a Hong Kong-based job, am I still eligible to purchase Class 3 Voluntary National Insurance Contributions (VNIC) until retirement age? If so, do I first apply for a Government Gateway ID and then pay annually? Thank you!
If you’re working remotely for a Hong Kong-based job while in the UK, and your employer has no UK address, you’re likely required to contribute to Class 1 NI, just like a local worker, instead of purchasing Class 3 VNIC. The process is more complicated than just applying for a Government Gateway ID. I’ve sent you an email with more details.
Got it! Thank you so much!! 🙂
Hello, if I’m working remotely for a Hong Kong-based job after moving to the UK, when and how do I need to report Class 1 NI? Thank you.
Hello, the process is quite complex. You may want to check out this YouTube video for guidance. youtube video.