NIC Round-Up

 Class 1

Class 1 National Insurance contributions are payable by employees and employers once their earnings exceed the relevant threshold. The liability is calculated separately for each earnings period, rather than cumulative as for PAYE tax. The earning period will normally correspond to the payment interval; however, directors have an annual earnings period regardless of how often they are paid.

The liability only arises once the earner reaches the age of 16. Employee (primary) contributions stop once the employee, reaches state pension age however, employer contributions continue if the employee continues to work beyond state pension age.

For employees (referred to as ‘employed earners’ in the National Insurance legislation), there are three thresholds and the upper earnings limit. For 2026/27, the lower earnings limit is set at £129 per week (£559 per month; £6,708 per year), the primary threshold is set at £242 per week (£1,048 per month; £12,570 per year) and the upper earnings limit is set at £967 per week (£4,189 per month; £50,270 per year).

Where the earnings in the earnings period are below the lower earnings limit, there is no National Insurance for the employee to pay. However, where earnings fall between the lower earnings limit and the primary threshold, the employee is treated as paying notional contributions at a zero rate, the effect of which helps secure a qualifying year for state pension purposes.

An employee must have earnings of at least 52 times the weekly lower earnings limit for the year to be a qualifying year. For 2026/27, an employee needs earnings of at least £6,708 for the year to be a qualifying year.

Once earnings exceed the primary threshold, the employee pays Class 1 National Insurance contributions (unless they have reached state pension age). Contributions are payable at the rate of 8% on earnings between the primary threshold and the upper earnings limit, and at 2% on earnings above the upper earnings limit.

Secondary contributions are payable by the employer on the employee’s earnings to the extent that they exceed the relevant secondary threshold. For 2026/27, the secondary threshold is set at £96 per week (£417 per month; £5,000 per year).

Higher secondary thresholds apply where the earner is under the age of 21, an apprentice under the age of 25 or an armed forces veteran in the first 12 months of their first job since leaving the armed forces. Here, employer contributions are only payable on earnings in excess of £967 per week (£4,189 per month; £50,270 per year). However, the earner pays primary contributions on their earnings as usual.

A higher secondary threshold also applies where the employer is located in a special tax site (either a Freeport or an Investment Zone) and the employee is a new employee in the first three years of their employment. Here, employer contributions are only payable on earnings in excess of £481 per week (£2,083 per month; £25,000 per year).

Employer contributions are payable at a rate of 15% for 2026/27. Unlike primary contributions, the rate does not drop once earnings exceed the upper earnings limit.

Eligible employers can claim the Employment Allowance which reduced their secondary Class 1 National Insurance liability. The allowance is set at £10,500. It is capped at the employer’s secondary Class 1 National Insurance liability for the year. Companies where the sole employee paid over the secondary threshold is also a director are not eligible to claim the allowance.

Class 1A

Class 1A National Insurance contributions are payable by employers on taxable benefits in kind, taxable termination payments (i.e. those in excess of the £30,000 threshold) and taxable sporting testimonials (i.e. those in excess of £100,000). The Class 1A rate is aligned with the secondary Class 1 rate and set at 15% for 2026/27.

Currently Class 1A National Insurance contributions on benefits in kind, whether payrolled or reported to HMRC on the P11D, are paid after the end of the tax year. The liability is calculated and reported on the P11D, which must be filed by 6 July following the end of the tax year. The Class 1A liability must be paid by 22 July if the payment is made electronically or by the earlier date of 19 July if paid by cheque. Consequently, Class 1A contributions payable on benefits and expenses provided to employees in 2026/26 must be paid by 22 July 2026 if paid electronically.

From 6 April 2027, payrolling becomes mandatory for all taxable benefits in kind other than accommodation benefits and taxable cheap loans (although employers will be able to register to payroll these voluntarily). Under mandatory payrolling, the payment of Class 1A contributions on benefits in kind will move in year and will be payable with the PAYE and NIC for the tax month which must be paid by the 22^nd of the month in which the tax month ends where payment is made electronically and by the 19^th of the month where payment is made by cheque. The liability will be reported through Real Time Information (RTI) on the Full Payment Submission (FPS). If an employer provides accommodation benefits or taxable cheap loans and does not opt to payroll them from 6 April 2027 onwards, the associated Class 1A National Insurance will remain payable after the end of the tax year.

Class 1A National Insurance contributions on taxable termination payments and taxable sporting testimonials are reported on the FPS and paid with the PAYE and NIC for the tax month in which the payment was made.

Class 1B

Class 1B National Insurance contributions are also employer only contributions. These are payable on items included in a PAYE Settlement Agreement (PSA) which would otherwise be liable to Class 1 or Class 1A National Insurance and also on the tax due under the PSA. Like Class 1A, the Class 1B rate is aligned with the secondary Class 1 rate and is set at 15% for 2026/27.

Class 1B National Insurance contributions are payable by 22 October following the end of the tax year to which the PSA relates where payment is made electronically and by 19 October if payment is made by cheque. For 2025/26 PSA’s, electronic payments should reach HMRC by 22 October 2026.

Class 2

Class 2 contributions are now voluntary contributions which can be paid by self-employed earners whose profits from self-employment are below the small profits threshold to give them a qualifying year. For 2026/27, the small profits threshold is set at £7,105, and the voluntary Class 2 rate at £3.65 per week. Voluntary Class 2 contributions are paid through the Self Assessment system.

For 2023/24 and earlier tax years, Class 2 contributions were mandatory where profits exceeded the relevant threshold and were the mechanism by which the self-employed secured a qualifying year for state pension purposes. The payment of Class 4 contributions now provides this role.

Class 3

Class 3 contributions are voluntary contributions which can be paid to fill gaps in a contributor’s contribution record. A person needs 35 years to secure a full state pension and at least 10 years to secure a reduced state pension. Before paying Class 3 contributions it is important to check that this will be worthwhile.

For 2026/27, the Class 3 rate is £18.40 per week. As this is considerably more than voluntary Class 2 contributions at £3.65 per week for 2026/27, where a person has the option of paying voluntary Class 2 (as will be the case if their profits from self-employment are below the small profits threshold), this is a much cheaper option.

Class 4

Class 4 contributions are payable by the self-employed where their profits exceed the lower profits limit, which for 2026/27 is set at £12,570. Contributions are payable at the rate of 6% on profits between the lower profits limit and the upper profits limit, set at £50,270 for 2026/27, and at 2% on profits in excess of the upper profits limit. Since 6 April 2024, it is the payment of Class 4 National Insurance contributions which provides self-employed earners with a qualifying year for state pension purposes.

Where a self-employed earner has profits between the small profits threshold and the lower profits limit (so between £7,105 and £12,570 for 2026/27), they do not have to pay Class 4 National Insurance contributions but they receive a National Insurance credit which provides them with a qualifying year for state pension purposes.

Profits are calculated as for tax purposes. Like Class 2, Class 4 National Insurance contributions are payable through the Self-Assessment system and are payable by 31 January after the end of the tax year to which they relate. They are taken into account in working out payments on account under Self Assessment.