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How is national insurance calculated in the UK? | Tax Calculator

How is National Insurance calculated in the UK?

How is national insurance tax calculated

National Insurance contributions also popularly known as NIC is calculated on the basis of your employment status and your earnings. There is a vast difference in the way National Insurance contributions for employed and the self employed is calculated.

Regardless whether you are employed or self employed, paying National Insurance (NI) is mandatory. Only in certain cases, you are exempted from paying National Insurance (NI).

We'll discuss how National Insurance (NI) is calculated in detail below. First, let's begin with National Insurance contributions for the Self Employed.

Autumn Budget 2024 Update – 30/10/24

The Autumn Budget 2024, announced on 30th October 2024, brings significant changes to National Insurance contributions for employers. The following updates will take effect from April 2025:

Employer National Insurance (NI) will increase from 13.8% to 15%.
The secondary threshold will be reduced from £9,100 to £5,000.
The Employment Allowance will rise from £5,000 to £10,500.

These changes are part of the government's ongoing efforts to adjust the tax and national insurance system to better support the economy and businesses in the coming years.

Different Classes of National Insurance (NI)

National Insurance (NI) contributions are categorized into different classes, each with specific rules based on employment status. Here's a breakdown of the various classes:

Class 1

Class 1 contributions are paid by both employers and employees. These are the standard contributions deducted from wages, including salary, overtime, and bonuses.

Class 1A

Class 1A contributions are paid solely by employers on the value of benefits or expenses provided to employees, such as company cars or private medical insurance.

Class 2

Class 2 contributions are voluntary contributions paid by the self-employed to help fill any gaps in their National Insurance record. This ensures they are entitled to the same benefits as employed individuals.

Class 3

Class 3 is also a voluntary contribution, but it’s paid by individuals who have a gap in their National Insurance record, such as those who were out of work or living abroad for a period of time.

Class 4

Class 4 contributions are made by the self-employed based on their profits. These contributions are calculated on a percentage of their annual earnings above a certain threshold.

National Insurance for the Self-Employed (2024-25 Tax Year)

There are two types of NI contributions for the self-employed: Class 2 and Class 4. The class applicable to you depends on your profits:

Profits under £12,570: No NI contributions are required. However, voluntary Class 2 contributions can be made at a flat rate.
Class 2 NI: If your profits are between £12,570 and £50,270, you must pay £3.45 per week.
Class 4 NI: On profits above £12,570:
- 10.25% on profits between £12,570 and £50,270.
- 3.25% on profits above £50,270.

Updated NI Rates for the Self-Employed (2024-25)

Profit After Allowable Expenses	National Insurance Rate
Up to £12,570	0% (Voluntary: £3.45/week)
£12,570 - £50,270	£3.45/week + 10.25%
Over £50,270	£3.45/week + 3.25%

NI Calculation Example for the Self-Employed (2024-25)

Profits: £30,000

£30,000 - £12,570 = £17,430.
£17,430 x 10.25% = £1,786.58.
Add Class 2: £3.45 x 52 weeks = £179.40.
Total NI: £1,965.98.

Profits: £60,000

£50,270 - £12,570 = £37,700 x 10.25% = £3,861.93.
£60,000 - £50,270 = £9,730 x 3.25% = £316.23.
Add Class 2: £179.40.
Total NI: £4,357.56.

National Insurance for the Employed (2024-25 Tax Year)

For employees, Class 1 NI contributions are deducted by employers based on gross earnings (before tax or pensions).

Earnings under £12,570: No NI contributions.
Earnings between £12,570 and £50,270: 8% of earnings.
Earnings above £50,270: 2% of earnings.

Updated NI Rates for the Employed (2024-25)

Annual Income	National Insurance Rate
Up to £12,570	Exempt
£12,570 - £50,270	8%
Over £50,270	2%

NI Calculation Example for the Employed (2024-25)

Income: £40,000

£40,000 - £12,570 = £27,430 x 8% = £2,194.40.

Income: £60,000

£50,270 - £12,570 = £37,700 x 8% = £3,016.
£60,000 - £50,270 = £9,730 x 2% = £194.60.
Total NI: £3,210.60.

Voluntary Class 3 Contributions

For individuals missing NI contributions, voluntary contributions (Class 3) can be made at £17.55 per week for the 2024-25 tax year.

Need Assistance?

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