National Insurance contributions are payments made by employees and employers that build entitlement to certain state benefits, including the State Pension. This article explains how Class 1 National Insurance works through your payroll for the 2026 to 2027 tax year (6 April 2026 to 5 April 2027): the rates, the thresholds, and how the contributions are calculated. For the category letters that decide which rates apply to a given employee, see the companion article National Insurance category letters explained.
What is National Insurance and why do employers deal with it?
National Insurance contributions (NICs) are payments made by workers and employers that build entitlement to certain state benefits, including the State Pension. For employees and employers the relevant contributions are Class 1 NICs, calculated and collected through your payroll every time you pay someone. As an employer you are legally responsible for working out both the employee's contribution and your own employer contribution, deducting the employee's share from their pay, and paying the combined amount to HMRC through PAYE. Because NI is reported in real time through RTI, the figures must be calculated correctly each pay period and submitted on your Full Payment Submission. Getting NI wrong affects both the employee's benefit record and the amount your business owes.
What is the difference between employee (primary) and employer (secondary) National Insurance?
Class 1 National Insurance has two parts calculated on the same earnings but charged to different people. Primary Class 1 NICs are the employee's contributions, which you deduct from gross pay so they reduce take-home pay. Secondary Class 1 NICs are the employer's contributions, a cost to your business on top of the wage and not deducted from the employee. Both are worked out from the same NIable pay in the period, but they use different thresholds and rates, which is why the two figures on a payslip rarely match. You report both amounts and remit the total of employee plus employer NICs together.
How much is employer National Insurance in 2026 to 2027?
For 2026 to 2027 the main rate of secondary (employer) Class 1 National Insurance is 15.0%. Employers pay this on an employee's earnings above the Secondary Threshold, which is £5,000 a year (£96 a week, £417 a month). There is no upper cap for employer contributions on standard category letters, so 15.0% continues on all earnings above the Secondary Threshold however high the pay. The only situations where employer NICs are 0% rather than 15.0% are the relief categories (apprentices under 25, employees under 21, qualifying veterans, and freeport or investment zone workers), and even those stop at a defined upper threshold above which 15.0% resumes.
How much is employee National Insurance in 2026 to 2027?
For a standard category A employee, primary (employee) Class 1 National Insurance is charged at 8% on earnings between the Primary Threshold and the Upper Earnings Limit, and at 2% on earnings above the Upper Earnings Limit. The Primary Threshold is £12,570 a year (£242 a week) and the Upper Earnings Limit is £50,270 a year (£967 a week). So an employee pays nothing on pay up to £242 a week, 8% on the slice between £242 and £967 a week, and 2% on anything above £967 a week. The 2% rate above the Upper Earnings Limit applies to every category letter.
What are the National Insurance thresholds for 2026 to 2027?
National Insurance is banded, so different slices of pay are treated differently. The thresholds for 2026 to 2027, shown as annual figures with the weekly figure in brackets, are: the Lower Earnings Limit £6,708 (£129); the Primary Threshold £12,570 (£242); the Secondary Threshold £5,000 (£96); the Upper Earnings Limit £50,270 (£967); the Upper Secondary Threshold for under-21s and the Apprentice and Veterans Upper Secondary Thresholds, all £50,270 (£967); and the Freeport and Investment Zone Upper Secondary Thresholds £25,000 (£481). Always apply the threshold that matches the employee's earnings period, not the annual figure, when running a normal weekly or monthly payroll.
What is the Lower Earnings Limit and why does it matter if no contributions are due?
The Lower Earnings Limit (LEL) is £6,708 a year, or £129 a week, for 2026 to 2027. Earnings at or above the LEL do not by themselves trigger any contribution, because employee NICs only start at the Primary Threshold and employer NICs at the Secondary Threshold. The LEL matters because earning at or above it protects an employee's entitlement to contributory benefits such as the State Pension, even in weeks where they pay no actual National Insurance. For this reason you must record earnings up to the LEL on the payroll record once pay reaches or exceeds the Secondary Threshold.
How is National Insurance calculated in each pay period?
In each pay period you take the employee's gross NIable pay and apply the bands that fall within that period's thresholds. For employee NICs you charge the primary percentage on earnings above the Primary Threshold up to the Upper Earnings Limit, then add 2% on earnings above the Upper Earnings Limit. For employer NICs you charge the secondary percentage on all earnings above the Secondary Threshold. HMRC prefers the exact percentage method, which works to pounds and pence, rather than the older tables method that uses whole-pound rounded bands. You should never mix the two methods for the same employee within one tax year, because the rounding differences would not reconcile.
What counts as pay for National Insurance (NIable pay)?
For National Insurance you calculate on gross pay for NICs purposes. This generally includes wages and salary, overtime, most bonuses and commission, and certain other cash payments in the period. National Insurance is worked out separately from PAYE income tax, and the NIable figure is not always identical to the taxable figure, so payroll software keeps the two running totals apart. Some items have their own rules: termination awards above £30,000 and certain sporting testimonial payments above £100,000 attract employer-only Class 1A at 15.0% reported in real time, while benefits in kind are dealt with through Class 1A after the year end. If you are unsure whether a payment is NIable, the CWG2 Employer Further Guide is the definitive reference.
How is National Insurance calculated for company directors?
Company directors have an annual, or pro-rata annual, earnings period for National Insurance regardless of how often they are actually paid. Under this method you calculate the director's National Insurance cumulatively across the tax year against annual thresholds, so contributions only start once cumulative earnings pass the annual Primary or Secondary Threshold, rather than week by week. The annual earnings period means a director paid irregularly, for example through occasional bonuses, has their contributions averaged over the whole year. This applies whatever the interval between payments and prevents directors timing pay to reduce National Insurance. HMRC's Booklet CA44 gives the full detail and worked examples.
What is the alternative method for directors, and when can I use it?
As well as the standard annual earnings-period method, the regulations allow an alternative arrangement. Under the alternative method, National Insurance can be deducted on a normal weekly or monthly basis during the year, with a final annual calculation when the last payment of earnings in the tax year (or in the directorship if it ends earlier) is made. At that final point you confirm the correct annual amount has been paid and make any adjustment on the payroll record. This is useful for directors who take a regular salary, because it smooths their take-home pay. Whichever method you use, the total for the year must come out the same, and Booklet CA44 explains both.
Why does HMRC prefer the exact percentage method over the tables method?
HMRC offers two ways to calculate National Insurance. The exact percentage method works in pounds and pence and applies the rates directly to the banded earnings, which is the most accurate approach and the one HMRC prefers. The tables method uses whole-pound earnings bands with built-in roundings, which can produce small differences compared with a computerised calculation. For modern payroll software the exact percentage method is the standard, and you should not use both methods for the same employee within a single tax year, because the rounding differences would not reconcile at year end.
What do the National Insurance bands look like in practice?
It helps to picture National Insurance as a series of slices. On a standard category A employee in 2026 to 2027, the slice of annual pay up to the Secondary Threshold of £5,000 carries no contributions. The slice from £5,000 up to the Primary Threshold of £12,570 carries employer contributions at 15.0% but no employee contributions, because the employer threshold is lower. The slice from £12,570 up to the Upper Earnings Limit of £50,270 carries both employee contributions at 8% and employer contributions at 15.0%. The slice above £50,270 carries employee contributions at the reduced 2% and employer contributions still at 15.0%. The relief categories change only the employer percentage on the middle slices, dropping it to 0% up to the relevant upper threshold.
Where can I find the official National Insurance rules?
The figures and calculation rules come from HMRC's National Insurance contributions guidance for software developers for 2026 to 2027, which sets out the exact percentage method, the directors' rules and the earnings bands and rates. For employer-facing operational guidance, the CWG2 Employer Further Guide to PAYE and NICs is the main handbook, and for company directors, Booklet CA44 gives detailed worked examples. For the category letters that decide which rates apply, see the companion article National Insurance category letters explained. Because thresholds and rates are set each tax year, always confirm the figures for the year you are running before finalising your payroll.