National Insurance is a tax on earnings and self-employment profits that funds state benefits including the State Pension, statutory sick pay, and certain other entitlements. Both employees and employers pay National Insurance on employment income, while the self-employed pay it through Self-Assessment.
National Insurance classes
Employees pay Class 1 National Insurance through PAYE, while the self-employed pay Class 2 and Class 4 contributions based on their profits. Company directors also pay Class 1 contributions on salary drawn from their company, which is a key factor when deciding on the right balance of salary and dividends.
Tax rules depend on individual circumstances and can change. This glossary is general information rather than personalised tax advice.