National Insurance (NI)
Plain-English definition of National Insurance (NI) — part of our UK tax glossary.
Definition
National Insurance is a UK tax funding state pensions and certain benefits. Employees pay 8% on earnings between £12,570 and £50,270, and 2% above. Employers pay their own NI contribution on top. Self-employed people pay Class 2 and Class 4 NI.
Worked example
On a £40,000 salary, NI costs roughly (£40,000 − £12,570) × 8% ≈ £2,194/year. Above £50,270 the rate drops to 2%, so NI is front-loaded into the mid-band of UK salaries.
Why it matters
UK tax thresholds are full of cliff edges — the 60% trap between £100k and £125k, the FTB stamp duty relief above £625k, child benefit tapers — and the marginal rate you actually face at any given moment is rarely the headline number. Knowing the vocabulary lets you run the right calculation before a bonus, a house move, or a pension contribution.
Common mistake
Treating tax bands as averages rather than marginal rates. An extra pound of gross salary in the 40% band costs 42% at the margin (tax + NI), and inside the £100k taper it effectively costs 60%. The average tax rate on the payslip is not what you will pay on the next pound.
Calculators that use this concept
Go deeper
See also
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