Net effect on employer costs: substantial rise for businesses paying multiple staff above £5,000 ST. Cushioned for sole-director micro-employers via the larger Employment Allowance (but only if EA-eligible - sole-director companies CANNOT claim EA). Employee NI rates UNCHANGED to maintain the "no rise on workers" political narrative while shifting ~£25bn/yr to the employer side of payroll tax.
* The 60% effective IT rate in £100k-£125,140 comes from PA taper (40% direct IT + 20% indirect via PA withdrawal). See our Personal Allowance guide for the taper mechanics.
- What are the UK NI rates for 2026/27?
- Five classes of NI in 2026/27. Class 1 (employees): 8% on earnings £12,570-£50,270, 2% above £50,270. Class 1 (employer): 15% on earnings above £5,000 Secondary Threshold (rate raised from 13.8% + threshold cut from £9,100 in April 2025). Class 2 (self-employed voluntary): £3.65/week (£189.80/year) for those below Small Profits Threshold £7,105 who want State Pension qualifying year. Class 3 (voluntary fill-in): £18.4/week (£956.80/year) to fill State Pension gap years. Class 4 (self-employed profits): 6% on profits £12,570-£50,270, 2% above. All thresholds frozen since April 2021 (Class 1) or 2024 (Class 4).
- What changed for NI in April 2025?
- Two major changes effective 6 April 2025 (Autumn Budget 2024). (1) Employer NI rate raised 13.8% → 15%: 1.2 percentage points more cost per employee earnings above ST. (2) Secondary Threshold cut £9,100 → £5,000: employer NI now applies to a much wider salary range. (3) Employment Allowance doubled £5,000 → £10,500: cushions the impact for small employers (2+ employees, NOT sole-director companies). Net effect on employer costs: significant rise for businesses paying multiple staff above £5k but well-cushioned for sole-director / micro-employer scenarios via the bigger EA. Employee Class 1 rates UNCHANGED (8% / 2%) - the political messaging emphasised "no rise on the worker" while shifting £25bn+ to the employer side annually.
- What is the Personal Threshold / Primary Threshold?
- The Class 1 Primary Threshold (PT) for employees has been aligned with the Income Tax Personal Allowance at £12,570 since July 2022 - the first £12,570 of earnings is NI-free for employees. Self-employed Class 4 NI uses the same £12,570 Lower Profits Limit. Both thresholds frozen since April 2021 through at least April 2031 (extended at Autumn Budget 2025). Above PT, employee NI starts at 8% main rate up to the Upper Earnings Limit (£50,270) which coincides with the higher-rate Income Tax threshold. Above UEL, NI drops to 2% upper rate. The PT-UEL band width (£12,570-£50,270 = £37,700) matches the basic-rate Income Tax band width exactly.
- Why did employee NI drop to 8%?
- Two cuts in 2024 from the outgoing Conservative government. January 2024: Class 1 main rate dropped from 12% to 10% (Autumn Statement 2023 announcement). April 2024: 10% → 8% (Spring Budget 2024). Class 4 self-employed main rate dropped from 9% to 8% in January 2024, then 8% to 6% in April 2024. The 2% upper rate (above UEL £50,270) was unchanged throughout. Combined annual saving for an employee on £40k: ~£900. For self-employed on £40k: ~£600. The Labour Autumn Budget 2024 did NOT reverse these cuts but DID raise employer NI to 15% to fund spending commitments - effectively a £25bn+ shift from employee to employer side of payroll tax.
- What is the Lower Earnings Limit (LEL) and why does it matter?
- LEL £6,725 for 2026/27 is the threshold at which earnings start to count for State Pension QUALIFYING YEAR purposes, even though no actual NI is paid until the Primary Threshold £12,570. Crucial for: part-time workers, employees on long sick leave with statutory sick pay only, or company directors paying themselves at £12,570 salary. Salaries between £6,725 and £12,570 cost the employee ZERO NI but still count as a "qualifying year" of contributions toward State Pension - 35 qualifying years gives the full new State Pension. This is why sole-director limited company owners pay themselves £12,570 salary annually - zero personal NI, but the year still counts for State Pension. Salaries BELOW LEL don't count - causing State Pension gaps that cost ~£275/year of entitlement per missing year. See our optimum director salary 2026/27 for the full director-pay decision.
- What is Class 3 voluntary NI and is it worth buying?
- Class 3 NI at £18.4/week (£956.80/year for 2026/27) is voluntary contributions to fill State Pension qualifying year GAPS. Use case: years where you didn't pay enough NI (Class 1 below LEL, self-employed below Class 2 SPT, unpaid carers without credits, expats living abroad). Standard buy-back window is 6 years - so in 2026/27 you can buy years back to 2020/21. The temporary extension to fill gaps back to April 2006 CLOSED in April 2025. Payback math: each Class 3 year buys ~£275/year of additional State Pension (1/35 of £241.30/week × 52). At £956.80 cost per year purchased, payback period is ~3.5 years post-retirement at State Pension Age. Average life expectancy at 67 is ~20 years - so Class 3 typically pays back ~6× the contribution over retirement. ONE OF THE BEST-VALUE FINANCIAL PRODUCTS in UK personal finance. Don't buy Class 3 if you already have 35 qualifying years (no extra benefit) or if you're confident you'll get there via future employment.
- How does Class 4 NI differ from Class 1?
- Class 4 applies to self-employed PROFITS, Class 1 applies to employee EARNINGS. Rates: Class 4 main rate 6% vs Class 1 main rate 8% - self-employed pay LESS NI than employees at the same income level (2pp saving in the main band). Class 4 upper rate 2% same as Class 1 upper rate 2%. Thresholds: same £12,570 Lower Profits Limit and £50,270 Upper Profits Limit. Class 2 interaction: from April 2024, Class 2 is no longer compulsory above SPT (£7,105) - self-employed above SPT automatically get the State Pension credit without paying Class 2. Class 2 voluntary at £3.65/wk remains available for those below SPT who want the State Pension qualifying year. Paid via SA: Class 4 NI is calculated and paid through Self Assessment alongside Income Tax, not deducted at source. Worked example: £30,000 self-employed profit pays ££1,046 Class 4 NI vs ££1,394 Class 1 if employed at same gross.
- What is the Employment Allowance for employers?
- £10,500 annual deduction from employer Class 1 NI bill (raised from £5,000 in April 2025). Available to most small employers with employer NI liability under £100,000 in the previous tax year. CRITICALLY UNAVAILABLE to: companies where the only employee paid above ST is a single director (Section 2 NICA 2014 amended 2016 to exclude sole-director PSCs). Used at the START of the tax year - reduces monthly employer NI bills until £10,500 of allowance is consumed. Worked example for 2-person business (director + 1 employee): combined annual employer NI ~£3,500 → fully covered by EA, zero employer NI cost. Mid-sized business with 10 employees averaging £30k: employer NI ~£37,500/yr - EA covers first £10,500, leaving £27,000 to pay. Spouse-employee workaround for sole directors: hiring a spouse at meaningful salary makes the company eligible for full EA. HMRC scrutinises sham arrangements - the role must be genuine.
- How does NI interact with Income Tax?
- NI calculated INDEPENDENTLY of Income Tax with its own bands. Below the £12,570 Primary Threshold, no NI. Between £12,570 and £50,270, employee NI 8% stacks on top of IT 20% = 28% combined. Above £50,270, NI drops to 2% but IT rises to 40% = 42% combined. The drop in NI rate partially cushions the IT jump but only by 6 percentage points. The £100,000-£125,140 PA-taper zone: IT effective 60% + NI 2% = 62% combined - the HIGHEST UK marginal rate, higher than the 47% additional-rate band. Self-employed face similar interactions: Class 4 6% + IT 20% = 26% combined basic-rate; Class 4 2% + IT 40% = 42% higher-rate; same 62% peak in £100k-£125,140 zone. Non-monotonic structure: a £55k employee pays MORE marginal tax on the next pound than a £75k employee, due to the NI 8% to 2% step at UEL.
- Do directors pay NI differently from employees?
- Yes - directors have "annual earnings basis" NI calculation, not the monthly basis applied to employees. NI is calculated on TOTAL annual earnings rather than month-by-month. The thresholds apply once per year, not 12 times. Implication for directors paid irregular salary: one big lump-sum payment in March doesn't get the per-month threshold benefit that an employee would (employee getting £40k in March pays employee NI on most of it; director paid same £40k in March doesn't pay more or less than if it had been spread across 12 months). The "annual basis" was created to prevent directors timing salary payments to abuse the monthly thresholds. Most owner-managed companies pay directors a regular £12,570 salary throughout the year + dividends - the annual basis doesn't change this. For director-only PSCs the Class 1A employer NI on benefits-in-kind (company car, private health insurance) follows annual rules too.
- How are bonuses treated for NI?
- Bonuses are EARNINGS for NI - same Class 1 rules apply. A £10,000 bonus on top of £45,000 salary: bonus stacks at the highest band. Employee NI on bonus: portion below £50,270 at 8%, portion above at 2%. Employer NI 15% on full bonus above £5,000 (already above for any employee with salary above ST). Bonus sacrifice into pension SAVES the employee 8% / 2% NI plus employer 15% NI (if pass-through). The most tax-efficient single annual move available for higher-rate earners with discretionary bonuses. See our bonus tax 2026/27 worked examples for the detailed math + 20-cell scenario matrix.
- How do I check my NI record and State Pension forecast?
- Free online via HMRC's Personal Tax Account at gov.uk/personal-tax-account and State Pension forecast at gov.uk/check-state-pension. Login with Government Gateway credentials. Personal Tax Account shows: current tax code, year-to-date pay + NI deducted, projected end-of-year position. State Pension forecast shows: years already counted, years still needed for full SP, projected weekly amount at SPA, any qualifying-year gaps. If gaps exist: each gap year can be filled by Class 3 voluntary contributions (£956.80 per year) up to the 6-year buy-back window. The temporary extension to fill gaps back to 2006 CLOSED April 2025. Most people approaching retirement should check 12-24 months before SPA to identify cheapest fill-in years (the gap-year cost is the rate at the time of the missed year, not current rate - so 2006-2012 buyback was much cheaper if you got it in pre-April-2025).