Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.
Rates and thresholds are accurate as of February 2024.
National Insurance contributions: a guide for UK employers
Patrick Whatman
Published on February 14, 2024
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UK National Insurance: a guide for employers
National Insurance contributions (NICs) make up a significant part of any UK company’s payroll costs. And given the relative complexity of the system, they can add a real administrative burden too.
But it’s critical to understand your obligations and to help employees comprehend theirs. These contributions help sustain the UK’s social safety net, and failure to pay correctly can have serious consequences for the company and for individual staff.
This article explains how the scheme works, when it applies, and how much you can expect to pay as a UK employer.
What is the UK’s National Insurance scheme?
National Insurance is a mandatory form of social security in the United Kingdom. Employed people (and their employers) over 16 years of age (and below pension age) must contribute, with the amount determined by the class and category of work.
For the year 2022-2023, NICs amounted to more than £176 billion out of a total of £788.6 billion in taxes collected by HMRC - 22%.
These contributions fund certain public benefits including state pensions, Jobseeker’s Allowance, Bereavement Support, Maternity Allowance, and some funds go towards the National Health Service (NHS).
The scheme is distinct from income tax. NI payments aren’t eligible to be used for general government spending - unlike most other taxes. But both are typically paid via HMRC’s PAYE system during payroll processing. These payments should appear itemised on employee payslips.
Who has to pay NICs?
While the majority of workers (and their employers) make contributions, there are various thresholds that change who pays and how much.
Here are those thresholds:
Lower Earning Limit (LEL): The LEL for 2023/2024 is £123 per week, £533 per month, and £6,396 per year. Employees earning below the LEL don’t have National Insurance contributions deducted from their pay.
They’re also not entitled to the associated benefits.
Primary Threshold (PT): The PT for 2023/2024 is £242 per week, £1,048 per month, and £12,570 per year. Employees need to make contributions when their earnings reach these amounts.
Secondary Threshold (ST): The ST for 2023/2024 £175 per week, £758 per month, and £9,100 per year. Beyond this threshold, employers start making contributions on top of what the employee pays.
Upper Earnings Limit (UEL): The UEL is £967 per week, £4,189 per month, and £50,270 per year. At this threshold, the employee contribution reduces significantly. The employer rate remains the same.
We’ll see how these thresholds alter the NIC rates paid shortly. But first, let’s look at how the nature of the work (and age of the employee) impacts the contribution amount.
National Insurance categories
The amount of National Insurance to pay an employee depends on a relatively complex set of categories. Each category has its own contribution schedule, as you’ll see when we get to the rates below.
The majority of employees are category A. But it still pays to have the category range in mind and ensure that you contribute the right amount for each team member.
[You’ll notice that our table below is not in alphabetical order. That’s because there are four categories related exclusively to freeports. We’ve kept these together at the bottom of the table.]
| Category letter | Type of employee |
|---|---|
| A | Default: all employees not covered by another category letter |
| B | Married women and widows entitled to reduced National Insurance |
| C | Employees over pension age |
| H | Apprentices aged under 25 |
| J | Employees already paying NI at another job (can defer payment) |
| M | Employees aged under 21 |
| V | Armed forces veterans working in their first job |
| Z | Employees under 21 already paying NI at another job (can defer payment) |
| F | All freeport workers not covered by I, L, and S |
| I | Married women and widows working in freeports entitled to reduced National Insurance |
| L | Freeport workers already paying NI at another job (can defer payment) |
| S | Freeport workers over pension age |
| X | Employees exempt from National Insurance |
National Insurance rates
National Insurance contributions are made by both the employee and employer. And the amounts are not the same - in most cases the employer’s contribution is higher than the employee’s.
The rate is determined by the employee’s category (see above) and their salary. While most employees fall into category A, you may still have some exceptions and edge cases to be aware of.
As with tax, NI contributions are progressive. So each employee makes zero contribution on their earnings below £1,048 per month, then the relevant rate between £1,048.01 and £4,189, and a different rate above £4,189.
The same applies to employer contributions.
NI rates for employees
The following rates apply from 6 January 2024 to 5 April 2024. These are the amounts employers deduct from employees’ pay.
| Category | £533 to £1,048 per month | £1,048.01 to £4,189 per month | Over £4,189 per month |
|---|---|---|---|
| A | 0% | 10% | 2% |
| B | 0% | 3.85% | 2% |
| C | N/A | N/A | N/A |
| F | 0% | 10% | 2% |
| H | 0% | 10% | 2% |
| I | 0% | 3.85% | 2% |
| J | 0% | 2% | 2% |
| L | 0% | 2% | 2% |
| M | 0% | 10% | 2% |
| S | N/A | N/A | N/A |
| V | 0% | 10% | 2% |
| Z | 0% | 2% | 2% |
NI rates for employers
The following rates apply for the year 6 April 2023 to 5 April 2024 (note: these dates are different from the employee table above).
These are the contributions made by employers towards their employees’ National Insurance.
| Category | £533 to £758 per month | £758.01 to £2,083 per month | £2,083.01 to £4,189 per month | Over £4,189 per month |
|---|---|---|---|---|
| A | 0% | 13.8% | 13.8% | 13.8% |
| B | 0% | 13.8% | 13.8% | 13.8% |
| C | 0% | 13.8% | 13.8% | 13.8% |
| F | 0% | 0% | 13.8% | 13.8% |
| H | 0% | 0% | 0% | 13.8% |
| I | 0% | 0% | 13.8% | 13.8% |
| J | 0% | 13.8% | 13.8% | 13.8% |
| L | 0% | 0% | 13.8% | 13.8% |
| M | 0% | 0% | 0% | 13.8% |
| S | 0% | 0% | 13.8% | 13.8% |
| V | 0% | 0% | 0% | 13.8% |
| Z | 0% | 0% | 0% | 13.8% |
National Insurance classes
As well as categories, NI contributions are also divided into separate classes. Here they are, briefly:
Class 1: Standard contributions made by employees and employers based on the salary paid.
Class 1A: Related to the value of company cars or other benefits in kind offered to employees.
Class 1B: Paid by the employer where there’s a PAYE settlement agreement in place. This applies to certain irregular benefits offered, where it’s easiest to contribute annually, outside of the regular PAYE system.
Class 2: Apply to self-employed people earning over £6,725 per year in profit.
Class 3: Voluntary payments made to cover gaps from unemployment, time away from the UK, or other missed contributions.
Class 4: Again for self-employed people, but with more than £11,908 in profit.
Importantly, Class 1A, 1B, and 4 contributions are not credited to the employee’s National Insurance account, and thus bring no extra benefit entitlements.
National Insurance on expenses and benefits
Similar to income tax, we think of NICs as applying to an employee’s core salary. Which of course is true. But Class 1A and 1B contributions apply to some expenses and benefits where the employee has gained real value.
This uses the same basic principle as benefits in kind. Companies and workers shouldn’t be able to avoid taxes by replacing a classic salary with other value-adding benefits.
For example, if your employee uses a company car outside of work, this is a clear asset that they’d otherwise have to spend their own salary on. And therefore there should be taxes and NICs paid.
The NIC rate for Class 1A and 1B is 13.8%.
When NICs are required
NICs and income tax are both supposed to be applied to earnings: “any remuneration or profit derived from employment.” So in order for NICs to be paid, the employee needs to have gained in some way.
(Almost) any expense or benefit that the employee incurs while carrying out their work is a business cost. They haven’t gained anything personally, and therefore shouldn’t have to pay tax or NICs when they’re reimbursed.
But, exceptions apply. In the following cases, the company and employee may be required to make contributions:
If they are reimbursed as part of a salary sacrifice scheme.
If the amount reimbursed is above HMRC’s pre-approved meal allowance rate (per diem).
If the amount reimbursed for mileage allowances is above HMRC’s approved rate.
Class 1A rates also apply to redundancy payments.
In some cases, companies can negotiate new per diem and mileage rates with HMRC directly. But in most cases, these rates exist to prevent companies from paying out excess amounts in place of salary, and attempting to reduce the tax impact.
You can still reimburse above these rates, but tax and NICs will apply.
Automate and track for easy NICs
The various thresholds, rates, and exceptions above can make tracking and paying NICs correctly difficult. And relying on spreadsheets and your own ability to navigate these rules is a losing battle.
That’s where a few good pieces of tech can really help.
First, you absolutely need payroll automation software. Make sure it integrates with HMRCs PAYE system and that contributions are calculated quickly and accurately.
Second, you must track company expenses closely. Again, trying to do this with paper expense claims and Excel files will only take you so far. Good expense tracking software is a far smarter, faster, and more reliable choice.
See how easy it is to upgrade all your operational spend processes:
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