Understanding National Insurance Classes (1, 2, 3, and 4)

National Insurance (NI) is a tax on earnings and self-employed profits paid by employees, employers, and the self-employed. It helps build your entitlement to certain state benefits, such as the State Pension and Maternity Allowance. However, the system is divided into different "Classes," which can be confusing. Here is a breakdown of how it works for the 2025/2026 tax year.

Class 1 National Insurance

This is paid by employees and employers.

• Primary Class 1 (Employees): If you are employed, your employer deducts this from your wages through PAYE. You pay 8% on earnings between the Primary Threshold (£12,570) and the Upper Earnings Limit (£50,270), and 2% on earnings above that.
• Secondary Class 1 (Employers): Employers also pay NI on their employees' earnings. They pay 13.8% on earnings above the Secondary Threshold (£9,100).

Class 1A and 1B

These are paid directly by employers on their employees' expenses or benefits (like a company car or health insurance).

Class 2 National Insurance

Historically, this was a flat-rate weekly contribution paid by the self-employed. However, recent changes have significantly altered Class 2.

From April 2024 onwards, if your self-employed profits are above the Small Profits Threshold (£6,725), you no longer have to pay Class 2 NI, but you are still treated as having paid it to protect your National Insurance record. If your profits are below £6,725, you can choose to pay Class 2 voluntarily (£3.45 a week) to keep your entitlement to state benefits.

Class 3 National Insurance

These are voluntary contributions. You can choose to pay Class 3 NI to fill gaps in your National Insurance record to ensure you qualify for the full State Pension. The rate for the 2025/2026 tax year is £17.45 a week.

Before paying Class 3, you should check your National Insurance record on the gov.uk website to see if you actually have gaps and if filling them will increase your pension.

Class 4 National Insurance

This is the main National Insurance paid by the self-employed, calculated as a percentage of your annual taxable profits.

For the 2025/2026 tax year, you pay:

• 6% on profits between the Lower Profits Limit (£12,570) and the Upper Profits Limit (£50,270).
• 2% on profits over £50,270.

You pay Class 4 NI alongside your Income Tax through your annual Self Assessment tax return.

Summary

If you are an employee, you pay Class 1. If you are self-employed, you pay Class 4 (and potentially voluntary Class 2). Understanding these classes ensures you know exactly what is being deducted from your income and why.