National Insurance Class 1

You might have heard there are four types of National Insurance — Class 1, Class 2, Class 3, and Class 4. They each serve different purposes, but in this post, we’ll only talk about Class 1.

If you’ve ever seen a payslip, work in a job, employ people, run a payroll scheme, or simply read your P45 or P60, even now when you are filling in Self Assessment Tax Return, Class 1 NIC is a term you’ve seen many times before.You always notice this number on your payslip, but have you ever wondered what it actually means — or why you pay that amount every month? No one ever really explains it, right? Yet, you’ve probably wanted to know how it’s calculated and what you’re really paying for.

The system can be confusing — full of thresholds, percentages, and rules that change every year. For the 2025–2026 tax year, the figures have been updated again, so in this post, we’ll walk you through how Class 1 National Insurance really works — including the latest rates, key numbers, and how they’re calculated — all in plain, easy-to-follow language.

What Is National Insurance?

National Insurance is a form of tax that helps fund state benefits such as the State Pension, maternity pay, and unemployment support. If you’re employed, it’s normally deducted automatically through your payroll as part of the PAYE system.

Calculate Employee NI Contributions

For employees, National Insurance starts once your earnings go above the weekly level of £242. Between this point and the upper earnings limit of £967 per week, the contribution rate is 8%. Anything you earn above that upper limit is charged at a reduced rate of 2%.

These are the standard “Class 1” employee rates for the 2025–2026 tax year, as confirmed in the latest official guidelines. Note that every year would have somewhat different numbers. Sometimes, there may appear two or three sets of rates and allowances — for example, if you still remember the mini-budget, that year we had changes twice, so three sets of rates were used. But I do not think you have heard the announcement. The reason is that it’s always low-profile, as most people do not have a choice, and most likely you do not know what you are paying and why you are paying.

Calculate Employer NI Contributions

Employers also have to pay their share of National Insurance on most employee earnings. For the new tax year, this applies once an employee earns over £96 a week. The main employer rate is 15%.

However, there are special rules for certain groups — for example, apprentices under 25, employees under 21, and veterans. Some of these categories qualify for reduced or even 0% rates up to specific earning levels.

National Insurance on Benefits and Allowances

If your business provides benefits to employees — such as a company car, mobile phone, or other perks — Class 1A National Insurance applies at 15% on the value of those benefits.
There’s also Class 1B, which applies to small or irregular taxable benefits covered under a PAYE Settlement Agreement, again at 15%.

NIC System Is Overly Complicated ?

The calculation of National Insurance isn’t straightforward. It depends not just on income but also on employment type, benefit arrangements, and special categories. Payroll software handles most of this automatically, but if you run payroll yourself or have multiple types of earnings, getting the numbers right can be tricky.

That’s where we can help. Our accountants understand the official guidance inside out and can make sure your National Insurance calculations are correct — saving you both time and potential errors.

If you’d like a clearer view of how the 2025–2026 National Insurance rates affect you or your business, talk to us today. We’ll help you understand exactly what you need to pay and ensure everything is handled efficiently.

Seek Professional Help

Correct handling of NI contribution and payment is important. Let Elaga Accountancy help you review your situation and tax position. We assist with national insurance or your payroll PAYE scheme, calculation reviews, or optimisation — so you handle your national insurance contribution with ease and confidence. So you focus on your strength and develop your business, leave the rest to us.

If you’re unsure whether your benefits qualify for Employment Allowance (see our post earlier). Our experienced team understands the nuances of NIC and payroll obligations and can guide you toward accurate, efficient, and compliant outcomes.

***Contact us to learn more.

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