For anything you earn over £4,189 per month, you will pay a rate of 3.25% (up 1.25 percentage points from 2% in the previous tax year). Once you earn more than the personal allowance limit, you will start to pay National Insurance, but how much you pay will depend on how much you earn. Most of us pay it each month without much thought on the specifics, but what is National Insurance, how is it calculated and why do we have to pay it? First, for the portion of earnings up to the Secondary Threshold (ST) of £417, the employer NI contribution rate is 0%, so the employer pays £0. No, Employer NICs are paid directly by the employer and do not affect an employee’s gross salary or take-home pay.
Sales & Investments Calculators
An employee in NI category A who earns £2,000 per month will have their National Insurance (NI) contributions calculated in several steps. Understanding these National Insurance rates helps employers plan for future payroll costs accurately, as National Insurance obligations will vary between these years. For a salary of £75,000, the annual increase in employer costs is £1,405.20, which represents a 1.63% increase. For a salary of £50,000, the annual increase in employer costs is £1,105.20, which represents a 1.93% increase. For a salary of £20,000, the annual increase in employer costs is £745.20, which represents a 3.37% increase.
You’re paying £ xxxx amount in national insurance.
If you have profits of less than £6,725 per year, you won’t have to pay any National Insurance. In summary, the total NI due for this period is £76.16 for the employee and £237.45 for the employer. There are no earnings between the FUST and UEL, nor any above the UEL, meaning the contributions for those parts are £0. The Employment Allowance (EA) reduces National Insurance liabilities for eligible employers.
Opening times
Ultimately, net income is a touchstone of financial health that tells you how much profit is left after all expenses. Operating, non-operating, taxes, interest, and even one-time costs or gains, so it reflects the true bottom line. Net income provides the best picture of profitability because it includes all expenses. EBIT focuses on the profit generated from your core business activities, excluding the impact of interest and taxes.
If you’re self-employed, you’ll pay Class 2 and Class 4 National Insurance, depending on your profits. Next, for the portion of earnings between the ST and the Freeport Upper Secondary Threshold (FUST), which amounts to £1,583, the employer NI contribution rate is 15%. This results in an employer NI contribution of £237.45 (calculated as £1,583 × 15%).
I’ve taken early retirement, do I pay National Insurance on my pension?
Net income, as we mentioned earlier, is your business’s total profitability. Operating income, also called EBIT (Earnings Before Interest and Taxes), shows the profit you make from your core business activities, before factoring in taxes and interest. If your total revenue from sales is higher than your expenses, you have a positive net income. This table shows how much employers deduct from employees’ pay from 6 April 2025 to 5 April 2026. Each number is unique – they are used to identify you so the government knows how much tax you have paid, how much state pension you might be owed, and to track your tax allowances. National Insurance has to be paid by both employed and self-employed workers from 16 until they reach state pension age (currently 66).
- While “net income” is commonly used in financial statements, “net profit” is used interchangeably in business discussions to describe the same concept.
- Accordingly, Sage does not provide advice per the information included.
- You’ll pay 10.25% National Insurance on profits between £9,880 and £50,270 and above that you’ll pay a lower rate of 3.25%.
- For a salary of £75,000, the annual increase in employer costs is £1,405.20, which represents a 1.63% increase.
- Ultimately, net income is a touchstone of financial health that tells you how much profit is left after all expenses.
Class 1A
Then, apply the employee and employer contribution rates in each earnings band and total these values. Yes, there are no two ways about it – if you earn more than the relevant threshold, you must pay National Insurance. If you’re employed, this will be done automatically through the Pay As You Earn (PAYE) system. This means that both NI and income tax will be taken off your gross salary by your employer, before reaching your bank account. The rate of NI you pay, and the level at which payments start, will depend on whether you’re employed or work for yourself, as well as how much you earn or make in profits. Class 4 contributions are made by the self-employed based on their profits.
Services offered include bookkeeping, corporation how to calculate ni tax, management accounts, personal tax, payroll, and Xero accounting. Our range of additional Sage HR modules can save time for you and your employees by simplifying HR. If you don’t pay sufficient NI contributions, then you may not be able to access certain state benefits, either now or in the future. “It goes into a national insurance fund and is used to pay people who need help today.
This table highlights the main National Insurance changes for 2025, showing how the employer NI rate and thresholds will be adjusted to impact payroll expenses. Gross income matters because it shows how much money you’re making from core business activities before expenses like taxes and interest. You can’t assume your business is profitable just from revenue, since every operation comes with costs like taxes, software subscriptions, and wages. Since 2016, any women in this position who have yet to reach state pension age will no longer be eligible. Their pension entitlement will depend instead on the number of qualifying years’ National Insurance contributions they have made in their own right. Women who took this option can continue to make reduced National Insurance contributions or pay at the full rate and build up individual pension entitlement.
Understanding how national insurance contributions operate will help you create a budget and verify that you have paid the appropriate amount. This is to align the primary limit for Class 1 NIC with the personal allowance for income tax. As a consequence of abolishing the State second pension, opting out is no longer possible. The Class 1 NI contributions rebate has been eliminated, and all employees, with few exclusions, are responsible for the same rate of Class 1 NICs on income above the primary threshold.
This is your own unique number, with a combination of letters and numbers, which is sent to you by the Department for Work and Pensions. You get one for life, and it makes for an easy way for HMRC to track your tax and NI payments over the years, along with any benefits and state pension entitlement. To calculate employer NI, start by determining the employee’s gross earnings. This includes salary, bonuses, and any other niable benefits (i.e., benefits that are subject to National Insurance contributions).
- Different accounting methods like how you handle depreciation, when you recognize expenses, or how you value inventory can change your net income.
- Employers pay a different rate of National Insurance depending on their employees’ category letters.
- All our accounting packages include free access to Chartered Certified Accountants, so you can make confident business decisions without worrying about extra costs racking up.
- These contributions are calculated on a percentage of their annual earnings above a certain threshold.
- To better understand how the net income formula works, let’s go through a quick example using both formulas.
These contributions help fund essential services, including the NHS, state pensions, and unemployment benefits. For employers, understanding how to calculate National Insurance contributions is essential to meet compliance requirements and avoid penalties. This guide explains how to calculate National Insurance, with a specific focus on the employer NI contributions changes effective April 2025.
Find out exactly what you owe on your income in seconds with our free National Insurance calculator. The relief lasts until the end of the tax-year or the £5,000 (£10,500) has been used up, depending on which happens sooner. The table above shows you how much National Insurance you’ll owe based on your earnings. Consult with an accredited tax accountant in a 30 minute, 1-1 tax advice session to stay on top of it. You will also have to pay £2,126 (6%) on your income between £12,570 and £48,000.