Your employee's National Insurance category letter tells the payroll which rates and thresholds to use, and choosing the right one can change the employer cost from 15% to 0% on a large slice of pay. This article explains each category letter for the 2026 to 2027 tax year, the employer-only National Insurance on benefits and PAYE Settlement Agreements, and how National Insurance numbers work. For the rates and thresholds themselves, see the companion article National Insurance: rates, thresholds and how it is calculated.
What are the National Insurance category letters?
The category letter you put against an employee tells the payroll which rates and thresholds to use, based on the employee's circumstances. The most common letters are: A, the standard category for most employees; B, married women and widows with a historic reduced-rate election; C, employees over State Pension age, who pay no employee NICs while the employer still pays secondary NICs; J, employees deferring NI because they already pay it in another job; H, apprentices under 25; M, employees under 21; V, qualifying veterans in their first year of civilian employment; Z, under-21s deferring NI because of another job; and F, I, S, L, D, E, K and N, the freeport and investment zone equivalents used in designated special tax sites. Choosing the correct letter is essential because it can change the employer cost from 15% to 0% on a large slice of earnings.
What is category A and when should I use it?
Category A is the default and applies to most employees aged between 21 and State Pension age who do not qualify for any special relief. On category A in 2026 to 2027, the employee pays 8% between the Primary Threshold (£12,570 a year) and the Upper Earnings Limit (£50,270 a year), and 2% above the Upper Earnings Limit, while the employer pays 15% on all earnings above the Secondary Threshold (£5,000 a year). If an employee does not clearly fall into another category, category A is almost always correct. Only move someone off category A when their age, veteran status, apprenticeship, special tax site location, deferment or reduced-rate election genuinely meets the conditions for another letter.
What is category B for married women and widows?
Category B applies to a small and declining group of married women and widows who hold a valid certificate allowing them to pay National Insurance at the reduced rate. This is a legacy arrangement: no new reduced-rate elections can be made, so category B only applies to women who made the election before it was withdrawn and have kept it in force. On category B the employee pays a lower primary rate between the Primary Threshold and Upper Earnings Limit than category A, plus the standard 2% above the Upper Earnings Limit, while the employer pays the full 15% secondary rate. Only use category B if the employee can produce a valid certificate, because applying it without one would under-deduct their contributions.
What is category C for employees over State Pension age?
Category C is used for employees over State Pension age. Once someone reaches State Pension age they stop paying employee (primary) National Insurance entirely, so their primary contribution is nil on category C. The employer, however, still pays secondary Class 1 NICs at 15% on earnings above the Secondary Threshold. To use category C correctly you should hold proof of the employee's date of birth or a certificate of age exception, and move them onto category C from the first pay period after they reach State Pension age. This is a common area for errors, because the employee's deductions change but the employer cost does not.
What is category H for apprentices under 25?
Category H is for apprentices under 25 following an approved UK apprenticeship. Its purpose is to reduce the employer cost: on category H the employer pays 0% secondary National Insurance on the apprentice's earnings up to and including the Apprentice Upper Secondary Threshold, which is £50,270 a year (£967 a week) for 2026 to 2027. Above that threshold the employer reverts to 15%. The apprentice still pays primary National Insurance in the ordinary way, at 8% between the Primary Threshold and Upper Earnings Limit and 2% above it, so the relief benefits the employer only. Keep evidence that the apprenticeship is genuine and the apprentice is under 25, and move them off category H when they turn 25 or the apprenticeship ends.
What is category M for employees under 21?
Category M applies to employees under 21. As with apprentices, the relief is on the employer side: the employer pays 0% secondary National Insurance on the under-21 employee's earnings up to and including the Upper Secondary Threshold, £50,270 a year (£967 a week) for 2026 to 2027, and only 15% above that. The under-21 employee still pays the standard 8% between the Primary Threshold and Upper Earnings Limit and 2% above it. You apply category M based on the employee's age, and you must switch them to category A from the first pay period in which they turn 21, unless another category applies.
What is category V for veterans?
Category V is the National Insurance relief for employers who hire qualifying veterans. From the first day of a veteran's first civilian employment after leaving the regular armed forces, the employer can claim a 0% rate of secondary Class 1 National Insurance for 12 consecutive months, on the veteran's earnings up to and including the Veterans Upper Secondary Threshold of £50,270 for 2026 to 2027, with 15% above that. The 12-month period runs from the start of the first civilian role and continues even if the veteran changes employer within that window, so a later employer can claim for the remainder. The veteran pays standard employee National Insurance throughout, and you should keep evidence of their status and start date.
What are the freeport and investment zone National Insurance categories?
Freeports and investment zones are designated special tax sites where the government offers a 0% rate of secondary Class 1 National Insurance to encourage employment. Eligible employers with a business premises in such a site can apply 0% secondary NICs on eligible employees' earnings above the Secondary Threshold up to and including the Freeport or Investment Zone Upper Secondary Threshold, both £25,000 a year (£481 a week) for 2026 to 2027, for up to 36 months. A new employee is expected to spend 60% or more of their working time within the site. The category letters used are F, I, S, L, D, E, K and N, mirroring the standard letters but flagging the special tax site, and above the threshold the employer pays the normal 15%.
How does the 0% employer relief actually save my business money?
These reliefs reduce only the employer (secondary) contribution and leave the employee contribution untouched, so the saving is a reduction in your business cost rather than the worker's deductions. For an under-21, apprentice or veteran employee, you pay 0% rather than 15% on the slice of pay between the Secondary Threshold and £50,270 a year, which is a substantial saving on a full-time worker. For a freeport or investment zone employee, the 0% applies up to £25,000 a year before 15% resumes. Even where the relief applies, you must still record the earnings and report the correct category letter through RTI, because the figures feed the employee's benefit entitlement and HMRC's records.
What is Class 1A National Insurance on benefits in kind?
Class 1A National Insurance is the employer-only contribution on most taxable benefits in kind, such as company cars, private medical insurance and other non-cash benefits. There is no employee Class 1A contribution, and it is not deducted from the worker's pay. For 2026 to 2027 the Class 1A rate is 15%, the same as the main secondary Class 1 rate. Most Class 1A on benefits is reported and paid annually after the tax year through the P11D and P11D(b) process. Some Class 1A charges must be reported in real time, including employer Class 1A at 15% on termination awards above £30,000 and on certain sporting testimonial payments above £100,000.
What is Class 1B National Insurance on a PAYE Settlement Agreement?
Class 1B National Insurance is an employer-only contribution linked to a PAYE Settlement Agreement (PSA), an arrangement where the employer agrees with HMRC to settle the tax and National Insurance on certain minor, irregular or impracticable-to-allocate benefits on behalf of employees, rather than reporting them per employee. Class 1B is charged on the value of the items in the PSA plus the tax the employer is paying on the employee's behalf, and replaces any Class 1 or Class 1A that would otherwise have been due on those items. It is paid annually after the tax year. Because the rate aligns with the employer secondary rate, confirm the figure against current GOV.UK guidance when you settle the PSA.
How does the National Insurance number work?
A National Insurance number is the unique reference that links an individual to their National Insurance and tax record throughout their working life. It is made up of two letters, six digits and a final letter, for example AB123456C, and it never changes for that person. As an employer you should record the employee's number on your payroll and include it on RTI submissions, because it lets HMRC match the contributions you report to the correct individual's account. The number is personal to the employee and is not allocated by the employer; new arrivals to the UK apply for one through the government's process. A wrong or transposed number can cause contributions to be credited to the wrong record.
How do I verify an employee's National Insurance number?
Employers can confirm an employee's number using HMRC's National Insurance Number Verification Request (NVR) service, submitted electronically alongside your RTI. You send an NVR when you take on a new employee, or when you are unsure whether the number you hold is correct, and HMRC responds by confirming the number or providing the correct one. You should not send an NVR until you have submitted your first Full Payment Submission for the employee, and the NVR is the proper route rather than guessing or reusing a number from another worker.
What if a new employee has no National Insurance number?
If a new employee genuinely does not have a number yet, you should still take them on and run them through payroll, because the lack of a number does not exempt anyone from National Insurance. You calculate and deduct their employee contributions and pay your employer contributions in the normal way based on their earnings and category letter, and report them through RTI leaving the National Insurance number field blank if you do not yet hold one. Ask the employee to apply for a number as soon as possible, and once it is confirmed, update your records. Never invent a number or copy one from another employee.