National Insurance Explained: How Much You Pay and How to Reduce It

National Insurance (NI) is the second-biggest deduction from most UK payslips — yet many employees don't fully understand how it works or that they can legally reduce it.

For a basic-rate taxpayer sacrificing £200/month into their pension, the NI saving alone is £192/year. For higher earners, the combined tax and NI saving from salary sacrifice can run to thousands. This guide covers everything you need to know about NI in 2026/27.

What is National Insurance?

National Insurance is a tax on earnings paid by both employees and employers. It funds state benefits including the State Pension, NHS, and unemployment support.

Unlike income tax, NI is calculated on a weekly or monthly basis — not annually. This matters if your income varies month to month.

Employee NI rates in 2024/25

The threshold where you start paying NI (£12,570) is the same as the income tax Personal Allowance in 2024/25.

Employer NI rates

Your employer also pays NI on your earnings:

• 13.8% on earnings above £9,100/year (the Secondary Threshold)

This is a significant cost for employers — and it's why many are willing to pass NI savings back to employees through salary sacrifice schemes.

How NI differs from income tax

Key differences:

How salary sacrifice reduces your NI

This is the key point most employees miss: salary sacrifice reduces your NI bill, not just your income tax.

When you sacrifice £200/month into your pension:

• Your gross pay falls by £200
• You pay 8% less NI on that £200 = £16/month saved
• Over a year: £192 saved in NI alone

For a higher earner sacrificing £500/month, the NI saving is £40/month (£480/year) — on top of the income tax saving.

The employer NI saving — and how to benefit

When you sacrifice salary, your employer saves 13.8% NI on the sacrificed amount.

On a £2,400/year sacrifice, your employer saves £331.

Many employers have a policy of passing some or all of this saving back into your pension. It's worth asking your HR or payroll team — it's essentially free money.

NI and the State Pension

Paying NI builds up your entitlement to the State Pension. You need 35 qualifying years of NI contributions for the full new State Pension (£221.20/week in 2024/25).

You can check your NI record and State Pension forecast at gov.uk/check-state-pension.

NI and benefits

Some state benefits are linked to NI contributions, including:

• State Pension
• Contribution-based Jobseeker's Allowance
• Contribution-based Employment and Support Allowance
• Maternity Allowance

If your earnings fall below the Lower Earnings Limit (£6,396/year in 2024/25) due to salary sacrifice, you may lose NI credits. This is very unlikely for most employees but worth checking if you're on a low salary.

Class 1, 2, and 4 NI — what's the difference?

This guide focuses on Class 1 NI for employees. If you're self-employed, salary sacrifice doesn't apply in the same way.

How to calculate your NI

For a salary of £45,000:

1. Earnings above £12,570 = £32,430
2. NI at 8% = £2,594/year
3. Monthly NI = £216

With £3,000/year salary sacrifice:

1. Adjusted salary = £42,000
2. Earnings above £12,570 = £29,430
3. NI at 8% = £2,354/year
4. NI saving = £240/year

What this means for you

On a £45,000 salary, you pay around £2,594/year in NI. Sacrificing £3,000 into your pension saves £240 in NI alone — on top of £600 in income tax. The combined saving of £840 means the £3,000 contribution costs you just £2,160.

At £60,000, sacrificing £5,000 saves £100 in NI and £2,000 in income tax. At £80,000, the NI saving is smaller (2% above £50,270) but the income tax saving at 40% is substantial.

If your employer passes back their NI saving, the numbers improve further. On a £5,000 sacrifice, that is an extra £690 into your pension at no cost to you.

Try the TaxCal UK calculator to estimate your take-home pay.

Summary

• Employee NI is 8% on earnings between £12,570 and £50,270
• Salary sacrifice reduces your gross pay, cutting your NI bill
• Your employer also saves 13.8% NI — ask if they pass this back
• Check your NI record if you are concerned about State Pension entitlement

For a full breakdown of how salary sacrifice reduces both your NI and income tax, see our salary sacrifice complete guide for 2026/27. If you earn over £60,000, also read our guide on how to reduce tax at £60k.

FAQ

Does salary sacrifice reduce NI or just income tax?

Both. Salary sacrifice reduces your gross pay before NI is calculated, saving 8% NI on earnings between £12,570 and £50,270, and 2% above that. Regular pension contributions (relief at source) only save income tax.

Does my employer pay NI on my salary sacrifice?

No. That is the point — salary sacrifice reduces the payroll your employer pays NI on. At the current 15% employer NI rate, a £5,000 sacrifice saves your employer £750.

Will salary sacrifice affect my State Pension?

Only if it reduces your earnings below the Lower Earnings Limit (£6,396/year). For most employees this is not a concern. Check your NI record at gov.uk if you are close to retirement.

Is NI the same in Scotland as in England?

Yes. National Insurance is not devolved — the same rates apply across the UK regardless of where you live.