Managing payroll in-house can be a complex and time-consuming task, especially when you factor in the evolving landscape of National Insurance (NI) contributions. For employers across the UK, staying compliant with current NI rates and categories is essential.
We’ve outlined everything you need to know about NI rates, employee categories, and the latest updates for the 2025/26 tax year.
What Is National Insurance?
National Insurance is a mandatory contribution system used to fund state benefits such as the NHS, pensions, and unemployment benefits. Both employers and employees make contributions, and the specific amounts depend on salary and employee classification.
National Insurance Categories
Employees are assigned an NI category letter based on their personal circumstances. Each category determines the contribution rate for both employee and employer.
- Category A – Standard employees over 21
- Category B – Married women and widows entitled to reduced rate
- Category C – Employees over the state pension age
- Category H – Apprentices under 25
- Category M – Employees under 21
- Category Z – Employees under 21 who are married women/widows entitled to reduced rate
- Category X – Employees who do not pay NI (e.g. under 16 or not eligible)
- Category V – Veterans in the first 12 months of civilian employment
- Category F – Freeport employees
- Category I – Married women and widows working in freeports who have a certificate of election form showing they’re entitled to pay reduced NI rates
- Category S – Employees working in Investment Zones
Each category comes with its own set of employer and employee contribution rates. Assigning the wrong category can result in compliance issues and miscalculations, so it’s vital for payroll teams to get this right.
2025 National Insurance Rate Changes
As of 6 April 2025, significant changes to employer NI contributions have come into effect:
- Employer Contributions (Secondary Class 1 NICs) have increased from 13.8% to 15%.
- The Secondary Threshold — the point at which employer NICs become payable — has been reduced from £9,100 to £5,000.
- The Employment Allowance has risen from £5,000 to £10,500, offering greater relief to eligible employers.
- The £100,000 eligibility cap on claiming Employment Allowance has been removed, meaning more businesses can now benefit from the relief.
These updates form part of the government’s strategy to stabilise public finances while easing the pressure on small businesses. However, they also result in increased liabilities for many employers, making accurate payroll calculation and reporting even more important.
Why It Matters for Your Business
Understanding NI rates and assigning the correct employee category is more than just a compliance task, it affects your bottom line. Errors in classification or rate application can lead to penalties from HMRC or incorrect employee contributions.
For businesses processing payroll in-house, these changes introduce additional complexity. Missteps can result in underpayment, overpayment, or missed opportunities for relief through the Employment Allowance.
How Qualitas Payroll Can Help
At Qualitas, we understand how critical accurate and compliant payroll processing is to your business. Our outsourced payroll services are built around accuracy, efficiency, and responsiveness.
We help SMEs and accountancy firms stay on top of HMRC requirements, providing:
- Automated classification of employees by NI category
- Up-to-date configuration in line with the latest rate changes
- Employer-focused reporting to monitor liabilities and entitlements
- Full HMRC submission and compliance management
- A dedicated account manager for support and continuity
Whether you’re a growing SME or a busy accountancy firm supporting multiple clients, our solutions ensure your payroll remains compliant, cost-effective, and hassle-free.