National Insurance is a separate deduction from Income Tax that funds the State Pension, NHS, and various other state benefits. Unlike Income Tax, National Insurance does not have a Personal Allowance taper for high earners, and it is calculated using simple threshold bands rather than the marginal-rate complexity of Income Tax.
| Band | Earnings | Rate |
|---|---|---|
| Below Primary Threshold | Up to £12,570 | 0% |
| Main rate | £12,570 – £50,270 | 8% |
| Upper rate | Over £50,270 | 2% |
| Band | Profits | Rate |
|---|---|---|
| Below Lower Profits Limit | Up to £12,570 | 0% |
| Main rate | £12,570 – £50,270 | 6% |
| Upper rate | Over £50,270 | 2% |
Self-employed individuals with profits above the Small Profits Threshold automatically receive National Insurance credits toward their State Pension, even though most self-employed people no longer pay Class 2 National Insurance directly following the April 2024 reform.
On a £35,000 salary, the first £12,570 is free of National Insurance. The remaining £22,430 is charged at 8% = £1,794. Since the salary is below the £50,270 upper threshold, no 2% band applies. Total National Insurance for the year: £1,794, or roughly £150 per month.
National Insurance contributions (or credits) build up "qualifying years" toward your State Pension. You generally need 35 qualifying years to receive the full new State Pension, and at least 10 years to receive any State Pension at all. Years where your earnings fall below the Lower Earnings Limit but you receive certain benefits may still count as qualifying years through National Insurance credits.