Limited and umbrella company employees must pay National Insurance Contributions (NICs) on salaries paid above a certain threshold.
Although National Insurance was originally set up to fund the NHS, NIC rates have risen rapidly over the past decade to fund general government spending, as politicians have become warier of increasing headline income tax rates.
In fact, National Insurance now contributes almost one in every five pounds received by HM Treasury.
This guide has been updated for the 2025/26 tax year.
What are Class 1 NICs?
All UK companies must pay Class 1 NICs on the wages paid to employees. Employees also have to pay NICs on their wages above a certain threshold.
For the 2025/26 tax year, limited companies pay Employers’ National Insurance at 15% on all salaries above the £5,000 secondary threshold.
Employees pay Employees’ National Insurance on income above the primary threshold of £12,570 per year.
8% on wages between £12,570 and £50,270 per annum.
2% on wages above £50,270 per annum.
You must earn above the LEL (Lower Earnings Limit) for your salary to qualify for your state pension. In 2025/26, the LEL remains at £6,5000.
How to pay National Insurance
If you are a limited company contractor, your accountant should have set up a company payroll to automatically calculate all company employees’ net pay.
Importantly, NICs are not payable on dividends, which is why limited company contractors typically pay themselves a modest salary (often beneath the prevailing NI threshold), and take most of their income as dividends.
Tax and NICs should be deducted at the source and paid to HMRC each month (or quarterly if the amounts are low – currently under £1,500 per month).
You can even pay your annual salary in one month, but your accountant must inform the tax authorities via HMRC’s Payment enquiry helpline.
If you have no tax / NIC payments to make at all, you should inform HMRC that no payment is due via an Employment Payment Summary (EPS).
Umbrella company employees also pay Class 1 NICs – the umbrella company will deduct both Employers’ and Employees’ contributions from your income. You will see the deductions on your weekly or monthly payslip.
Class 2 and Class 4 National Insurance for the ‘self-employed’
The ‘self-employed’ (business owners who don’t work via limited companies) must pay Class 4 NICs on their annual earnings.
The Class 4 rate is calculated at the end of each tax year – via self assessment – according to annual profits, as follows:
6% on profits between £12,570 and £50,270 per year.
2% on profits above £50,270 per year.
Since April 2024, Class 2 NICs are no longer mandatory. However, if your annual profits are below the £6,845 small profits threshold, you can still make payments of £3.50 a week in 2025/26.
This ensures that the current tax year counts towards your State Pension entitlement.
The vast majority of contractors do not work as ‘self-employed’ individuals, but we have included the Class 2 and 4 rates for the sake of completeness.
Employment Allowance
A new ‘Employment Allowance’ (EA) was introduced in April 2014, which now cancels out the first £10,500 of employers’ NICs paid by any UK business.
However, to qualify for the allowance, the business must pay its employees over the £5,000 secondary NI threshold.
