How NI is calculated
National Insurance is calculated each pay period independently, in contrast to Income Tax which PAYE calculates cumulatively year-to-date. This means an employee who earns a large bonus in one month and nothing the next pays NI only on the bonus month — there is no year-end reconciliation or averaging across periods for NI purposes.
The starting point is the employee's NI category letter, which the employer records when the person joins. The category determines which thresholds and rates apply. Most employees are Category A.
For a Category A employee, the weekly thresholds work as follows:
- Earnings at or below the Lower Earnings Limit (LEL): no NI is due, but the employee is treated as if they paid, which means pension entitlement accrues. This is an important protection for low-paid workers.
- Earnings between the LEL and the Primary Threshold (PT): no NI is due from the employee, but the entitlement-credit still applies.
- Earnings between the PT and the Upper Earnings Limit (UEL): employee NI is charged at the main rate.
- Earnings above the UEL: employee NI drops to a much lower rate. There is no equivalent cap for employer NI — it continues at the full employer rate on every pound above the Secondary Threshold.
The employer also pays NI on employee earnings above the Secondary Threshold (ST), which is set lower than the employee PT. This is why employers start paying NI on some earnings before the employee does.
NI rates and thresholds 2026/27 (Class 1, employees)
These are the weekly thresholds and rates for Class 1 National Insurance, which covers employees in employment. Director NI is calculated annually rather than per period. Rates are set by HMRC and may change at each Autumn Statement or Budget.
| Band | Range | Rate |
|---|---|---|
| Lower Earnings Limit (LEL) | £125/week | No NI due, but entitlement to State Pension accrues |
| Primary Threshold (PT) | £242/week | Employee NI starts above this point |
| Employee NI — main rate | 8% | On earnings between PT and UEL |
| Upper Earnings Limit (UEL) | £967/week | Employee rate steps down above this point |
| Employee NI — upper rate | 2% | On earnings above UEL |
| Secondary Threshold (ST) | £96/week | Employer NI starts above this point |
| Employer NI rate | 15% | On all employee earnings above ST; no upper cap |
Monthly equivalents: LEL £542, PT £1,048, UEL £4,189, ST £417. The Employment Allowance can reduce the employer NI bill by up to £10,500 a year for eligible employers — see Employment allowance.
NI categories
The NI category letter recorded against each employee determines which thresholds and rates apply. The most common categories are:
- A — standard rate; applies to the vast majority of employees.
- B — married women and widows who hold a valid "reduced liability" election (a legacy election closed to new applicants in 1977; some older employees still hold one).
- C — employees who have reached State Pension age pay no NI; employers still pay at the standard employer rate.
- H — apprentices under 25 who are in an approved apprenticeship framework. The employer pays no NI on earnings up to the UEL.
- M — employees under 21. Again, no employer NI up to the UEL.
- V — veterans in their first civilian year of employment after leaving the armed forces; employer NI is nil up to the UEL for that year.
- Z — employees under 21 with a deferment certificate (used when the employee has more than one job and NI has already been collected at the main rate elsewhere).
The employer must assign the correct category from the first payday; changing it retrospectively requires the payroll records to be adjusted and corrected FPS submissions filed.
Related terms
Authoritative source