National Insurance Contributions Guide

Your first hire just accepted. You’ve sorted the employment contract, the pension enrolment letter, and the payroll software login.

Then you open the HMRC employer guidance and hit a wall of NIC classes, thresholds, and rates.

You’re not sure whether the 15% figure you saw applies to you or to your employee, what Class 1A has to do with the company car you’re offering, or whether Employment Allowance is something you can actually claim.

This guide cuts through that. It covers what you owe as an employer, what your employee owes, how benefits and expenses create a separate NIC bill, and what reliefs are available in the 2025-26 tax year.

What are National Insurance Contributions and who pays them?

National Insurance Contributions are a payroll tax split between employers and employees. The two sides are calculated separately, based on different thresholds, and they fund different things in the background.

As an employer, you need to handle both.

Your contribution is called the secondary contribution. Your employee’s is the primary contribution. Both sit under the umbrella of Class 1 NICs, which apply to employment earnings.

What creates confusion is that HMRC uses the same label for a tax that works differently depending on which side of the payslip you’re on.

You need to calculate, deduct, and remit both sides to HMRC as part of your PAYE obligations. Your payroll software should handle the arithmetic, but you’re responsible for the figures being correct.

How does employer Class 1 NIC work in 2025-26?

From 6 April 2025, the employer (secondary) Class 1 rate is 15% on all earnings above the secondary threshold of £5,000 per year (£96.15 per week). There is no upper limit.

The rate applies to everything above the threshold.

This represents two simultaneous changes from 2024-25: the rate increased from 13.8%, and the threshold dropped from £9,100 to £5,000. The combined effect is significant.

On a salary of £30,000, employer NIC in 2024-25 was roughly £2,884 (13.8% on £20,900). In 2025-26, it is £3,750 (15% on £25,000). That is an increase of £866 per employee per year, before any relief.

For a team of ten employees each earning £30,000, that increase is £8,660 annually. If you hadn’t revisited your payroll cost projections since last year, the April bill would have been a surprise.

The calculation itself is straightforward. Take gross earnings, subtract £5,000, multiply by 15%.

For weekly payroll, divide the annual threshold into a weekly equivalent (£96.15) and apply 15% to earnings above that each week.

How does employee Class 1 NIC work?

Your employees pay primary Class 1 NIC on their earnings between the primary threshold (£12,570 per year) and the upper earnings limit (£50,270 per year) at 8%.

Above £50,270, the rate drops to 2% with no upper ceiling.

Below £12,570, no employee NIC is due. However, earnings between £6,396 (the lower earnings limit) and £12,570 still count for NIC purposes, preserving entitlement to the state pension and certain benefits without requiring any payment.

This is not a quirk to overlook: employees earning just below the primary threshold are still building qualifying years.

You deduct the employee’s NIC from gross pay and remit it to HMRC alongside your own contribution. The employee never pays HMRC directly.

What is Class 1A NIC and when does it apply?

Class 1A NIC applies to benefits in kind: non-cash perks that have a taxable cash equivalent.

Company cars, private medical insurance, interest-free loans above £10,000, and similar benefits all trigger a Class 1A liability.

The rate for 2025-26 is 15% (up from 13.8%). You calculate Class 1A on the P11D value of each benefit and report it annually on form P11D(b).

Payment is due by 19 July after the tax year ends (22 July for electronic payment). The 19 July deadline catches employers off guard because everything else in PAYE follows the April year-end rhythm.

Class 1A does not.

If you payroll your benefits instead of reporting them on P11D forms, the NIC liability is still calculated the same way and still reported on P11D(b).

Payrolling simplifies the income tax side for employees, but it does not remove the employer NIC filing obligation.

What is Class 1B NIC and when does a PSA apply?

Class 1B NIC arises when you have a PAYE Settlement Agreement (PSA) with HMRC. A PSA lets you make a single annual payment covering the tax and NIC on minor or irregular benefits and expenses that would be disproportionate to include on individual P11D forms.

Staff entertaining, small gifts, and trivial benefits typically fall here.

The Class 1B rate is also 15% for 2025-26. You apply for a PSA before the start of the tax year (or shortly after) and agree the items with HMRC. The payment deadline is 19 October following the tax year.

A PSA is worth considering if you have a mix of informal benefits that would otherwise generate a pile of individual P11D calculations.

It does not reduce your liability, but it simplifies administration considerably.

How does Employment Allowance reduce your bill?

Employment Allowance lets eligible employers reduce their employer Class 1 NIC liability by up to £10,500 per tax year. You claim it through your payroll software at the start of the year.

The allowance applies across your regular payroll runs until it is used up or the tax year ends.

From April 2025, the eligibility rules changed in two ways. First, the allowance increased from £5,000 to £10,500. Second, the previous restriction that excluded employers whose NI liability exceeded £100,000 in the prior year was removed.

Larger employers can now claim it.

There are still exclusions. The one that catches small limited companies: if your company has only one director and that director is the only person liable for secondary Class 1 NIC, you cannot claim Employment Allowance.

Add one further employee to the payroll and the restriction lifts.

Other exclusions include workers engaged through IR35 off-payroll rules, and people employed for personal household work. Connected companies can only claim the allowance through one entity in the group.

For an employer with a £60,000 annual NIC bill, the £10,500 allowance reduces that to £49,500. It does not generate a refund if unused; any unused balance at year end is simply lost.

How are director NICs calculated differently?

Company directors have NIC calculated on an annual basis rather than per pay period. This matters because directors often take low salaries and high dividends.

A director paid nothing for several months and a large salary in one period would otherwise hit NIC thresholds disproportionately under standard period-by-period rules.

There are two methods. The standard annual method calculates NIC for the whole year using annual thresholds, then divides the liability across pay periods. The alternative method uses a cumulative approach period by period.

Most payroll software defaults to the annual method for directors.

The practical consequence: if a director takes a salary spike near the end of the tax year to use up their secondary threshold allowance, the annual calculation ensures NIC is assessed correctly across the full year rather than generating an overpayment through periodic calculation.

Check your payroll software has the director flag set correctly. If a director is processed as a standard employee, the NIC calculation will be wrong, and corrections at year end require an amended FPS submission.

What is the next concrete step?

Run your payroll cost projections for 2025-26 using the current rates, not last year’s. For each employee: calculate 15% on earnings above £5,000. Sum the total, then subtract your Employment Allowance entitlement if you qualify.

That is your net employer NIC liability for the year.

If you have not claimed Employment Allowance yet this tax year, claim it now through your payroll software. You can back-claim within the tax year, and the allowance will offset future payroll runs.

If you offer benefits in kind, pull your P11D values and apply 15% to estimate your Class 1A bill. Set a reminder for 6 July (P11D submission) and 19 July (Class 1A payment) now, not in June.

For broader payroll obligations beyond NICs, see our guide to UK small business payroll and how PAYE works for employers.