National Insurance Contributions (NIC)

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1 Employed earners

1.1 Class 1 contributions

Class 1 NIC is paid by employees and employers as follows:

Employees
The contributions begin when the employee is aged 16 or over. For 2025/26, the rate of employee Class 1 NIC is at 8%. It is paid where cash earnings exceed a threshold of £12,570 per annum, but only up to an upper limit of £50,270 per annum. Where earnings are above £50,270 per annum there is a rate of 2% payable on the excess. The contributions cease when the employee reaches state pension age. For employees it is payable in respect of an 'earnings period' which is usually either weekly or monthly. For directors, it is calculated annually.
Employers
The rate of employer Class 1 NIC is 15%. It is paid on cash earnings that exceed a threshold of £5,000 per annum. These are payable from the employee's 16th birthday, but there is no upper age limit.

1.2 Class 1A Contributions

The rate of Class 1A NIC is payable only by employers on taxable benefits provided to employees. The rate is 15% multiplied by the assessable value of the benefits.

The rates are given in the tax tables at the front of the exam - use them!

Class 1	Employee	£1 - £12,570	@	0%
		£12,571 – £50,270	@	8%
		£50,271 and above	@	2%
Class 1	Employer	£1 - £5,000	@	0%
		£5,001 and above	@	15%
		Employment allowance		£10,500
Class 1A				15%

2 Employment Allowance

There is an annual employment allowance of £10,500 per EMPLOYER to reduce the Employer’s Class 1 NIC payable.

For example, if the employer’s Class 1 NIC for the tax year is £16,000 the amount payable will be reduced by the £10,500 employment allowance to £5,500. If the total employer’s Class 1 NIC was say £9,500 then this would be reduced to nil.

The employment allowance is not available to companies where a director is the sole employee. This restriction has been introduced because the employment allowance is targeted at businesses which support employment.

The employment allowance does not reduce the amount of employer Class 1A NIC payable nor will it serve to reduce the amount of Class 1 employee’s NIC.

An employee of Riga Ltd was paid £60,000 per annum and was provided with the following benefits during 2025/26:

	£
Company car	6,400
Fuel	4,320

Calculate the Class 1 and Class 1A NIC liabilities in respect of this employee.

The Class 1 and Class 1A NIC liability is as follows:

Class 1		£
Employee	£12,570 x 0%	Nil
	£(50,270 – £12,570) × 8%	3,016
	£(60,000 – £50,270) × 2%	195
		3,211

Employer	£5,000 x 0%	Nil
	£(60,000 – £5,000) × 15%	8,250
		8,250

The employment Allowance of £10,500 would be deductible from the TOTAL Employer's Class 1 NIC liability of Riga Ltd.

Class 1A

Employer £6,400 + £4,320 = £10,720 x 15% = £1,608

3 Self-employed earners

3.1 Class 4 contributions

The self employed pay Class 4 contributions which are based on the assessable trading profits of the tax year.
The rate of Class 4 NIC is nil up to £12,570 and is 6% and is payable on trading income between £12,570 and £50,270.
For trading income in excess of £50,270, a rate of 2% is payable.
Contributions begin if the employee is 16 at the start of the relevant tax year but contributions cease, when the taxpayer reaches state pension age at the start of the relevant tax year.

The rates are given to you in the tax tables at the front of the exam - use them!

Class 4	£1 - £12,570 per year	@	0%
	£12,571 – £50,270 per year	@	6%
	£50,271 and above per year	@	2%

Jerome, a trader, has a trading profit assessment of £60,000 for 2025/26.

Calculate his Class 4 NIC for 2025/26.

Class 4	£
(£50,270 – £12,570) × 6%	2,262
(£60,000 – £50,270) × 2%	195
	2,457

This topic will either be examined as a small part of a Section B/C question for 3 or 4 marks or more likely in Section A as a multiple choice question.

This chapter and the maths involved is an excellent way to earn those few extra valuable marks in the exam.