How Is National Insurance Calculated?
- Connor Thubron
- Apr 14
- 3 min read
If you’re employed, self-employed, or running your own business, you’ve probably noticed National Insurance deductions on your payslip or tax return.
But how is National Insurance calculated, exactly — and are you paying the right amount?
In this guide, we’ll break down everything you need to know about how NI is calculated in 2025, what the thresholds are, and how different classes of National Insurance work. Plus, we’ll show you how to check if you're overpaying and what to do if you want help with your tax and National Insurance.
What Is National Insurance?
National Insurance (NI) is a type of tax paid by workers and employers in the UK. It helps fund state benefits like the NHS, pensions, and unemployment support.
If you’re over 16, earning above a certain threshold, or self-employed and making a profit, you’ll likely need to pay National Insurance.
Why It’s Important to Understand National Insurance
Understanding how National Insurance is calculated can:
Help you spot overpayments
Ensure you’re meeting legal obligations
Let you budget more accurately
Reveal whether you’re due a refund or rebate
Many people don’t realise they’re paying more than they need to — especially self-employed workers or small business owners.
So, How Is National Insurance Calculated?
National Insurance is calculated based on:
How much you earn
Your employment status
The NI class you fall under
Let’s look at each of these in more detail.
National Insurance Thresholds (2025)
In 2025, the main thresholds are:
Threshold | Weekly Earnings | Annual Earnings |
Lower Earnings Limit (LEL) | £123 | £6,396 |
Primary Threshold | £242 | £12,570 |
Upper Earnings Limit (UEL) | £967 | £50,270 |
These figures are for Class 1 contributions (employees).
National Insurance for Employees (Class 1)
If you’re employed, you’ll pay Class 1 National Insurance:
12% on earnings between £12,570 and £50,270
2% on anything you earn above £50,270
Your employer also pays NI on your behalf (usually 13.8%).
National Insurance for Self-Employed
If you’re self-employed, you’ll usually pay both Class 2 and Class 4:
Class 2 NI (Flat Rate)
£3.45 per week (if you earn over £6,725/year)
Class 4 NI (Earnings-Based)
9% on profits between £12,570 and £50,270
2% on profits above £50,270
You’ll pay these through your Self Assessment tax return.
NI for Employers
As an employer, you’ll pay:
13.8% on employee earnings above £9,100 per year
This is called Employer’s National Insurance and is a business cost.
Example: NI Calculation for an Employee Earning £35,000
Let’s say you earn £35,000 per year:
Your NI is based on income above £12,570, up to £50,270
So you pay:£35,000 - £12,570 = £22,43012% of £22,430 = £2,691.60/year
Your employer would pay:
£35,000 - £9,100 = £25,900
13.8% of £25,900 = £3,574.20/year
Can You Reduce Your National Insurance?
Yes! You may be able to reduce your NI payments by:
Claiming allowable business expenses
Restructuring how you draw income (e.g., salary vs dividends)
Making voluntary contributions strategically
Ensuring you’re using the correct tax code or NIC category
Get a Free Review of Your National Insurance and Tax
If you’re not sure whether you’re paying the right amount of National Insurance — or if you just want peace of mind — we offer a free tax and NI review at Ultra Tax Ltd.
Our expert accountants will:
✅ Check if you’re on the right tax code
✅ Review your NI class and contributions
✅ Highlight any overpayments or savings
✅ Answer your questions in plain English
Frequently Asked Questions
Do I have to pay National Insurance if I’m self-employed?
Yes — if your profits are over £6,725/year, you’ll usually pay Class 2 and Class 4 NI.
How do I check my National Insurance contributions?
You can log into your personal tax account on GOV.UK to see your full record.
What happens if I don’t pay enough NI?
You may not qualify for full State Pension or other benefits — so it's important to stay on top of it.
Can I get a refund on overpaid NI?
Yes — but you’ll need to apply through HMRC, or we can assist with this as part of our review.
Conclusion
Understanding how National Insurance is calculated gives you more control over your finances — whether you’re employed, self-employed, or running a business.
Many people overpay or miss out on benefits due to confusion around NI. At Ultra Tax, we’re here to simplify it for you and make sure you’re not losing money.
💬 Let’s make sure you’re paying the right amount. Click here to book your free tax and NI consultation
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