Employers are required to assign the correct National Insurance category letters to employees when running payroll. These letters enable employers to calculate the National Insurance liability on each person’s pay, ensuring the necessary contributions are made to HMRC.
In this post, we provide an overview of each category letter and the corresponding contribution rates for employees and employers. The information below relates to the 2024-25 tax year, which runs until 5 April 2025.
What’s the purpose of National Insurance category letters?
National Insurance contributions (NICs) represent the second-biggest tax in the UK. In the 2024-25 tax year alone, they are expected to generate around £170 billion—approximately one-sixth of all UK tax revenue.
Employees (including company directors) and self-employed individuals are liable for NICs on their wages or profit above certain thresholds. Employers must also pay NICs on employees’ earnings above the ‘secondary’ threshold, which is currently £9,100 per year.
Most individuals over the State Pension age do not pay employee or self-employed National Insurance contributions. However, employer NICs are still due on their pay.
To determine how much is payable, employers must assign each employee a specific National Insurance category letter based on their circumstances. The applicable letter indicates the liability (if any) of both the employee and employer.
There are 17 category letters in total, with ‘A’ and ‘C’ applying to most employees. Each letter corresponds to a specific contribution rate, so it’s crucial to understand which category an employee falls under before processing their pay. We outline these in the tables below.
Most common National Insurance category letters
| Category letter | Employee group |
| A | All employees except those in groups B, C, H, J, M, V, X and Z in this table |
| B | Married women and widows who are entitled to pay a reduced rate of National Insurance |
| C | Employees over the State Pension age |
| H | Apprentices who are under the age of 25, on an approved UK government apprenticeship standard or framework, and earn less than £967 per week. Once they turn 25, they must be moved to NI category A |
| J | Employees who can defer National Insurance because they are already paying it in another job |
| M | Employees under the age of 21 (unless they are an apprentice). Once they turn 21, they must be moved to NI category A |
| V | Employees who are working in their first job since leaving the armed forces (veterans) |
| X | Employees who don’t have to pay National Insurance – for example, because they’re under the age of 16 |
| Z | Employees under the age of 21 who can defer National Insurance because they are already paying it in another job |
NI category letters for employees who work in freeports (or Green Freeports in Scotland)
| Category letter | Employee group |
| F | All employees who work in freeports, apart from those in groups I, L, and S in this table |
| I | Married women and widows who work in freeports and are entitled to pay a reduced rate of National Insurance |
| L | Employees who work in freeports and can defer National Insurance because they’re already paying it in another job |
| S | Employees who work in freeports and are over the State Pension age |
NI Category letters for employees who work in investment zones
| Category letter | Employee group |
| N | All employees who work in investment zones, apart from those in groups E, D, and K in this table |
| E | Married women and widows who work in investment zones and are entitled to pay a reduced rate of National Insurance |
| D | Employees who work in investment zones and can defer National Insurance because they’re already paying it in another job |
| K | Employees who work in investment zones and are over the State Pension age |
There are different rules for foreign-going mariners and deep-sea fishermen. HMRC provides detailed guidance for employers of these workers, which explains how to calculate contributions manually for those who must pay National Insurance.
Contribution rates for each National Insurance category letter
Employees’ wages are subject to Class 1 National Insurance when their earnings exceed certain annual thresholds. These contributions comprise:
- employee (primary) Class 1 NICs—deducted from an employee’s wage before they are paid
- employer (secondary) Class 1 NICs—paid by an employer on top of an employee’s wage
The rates payable depend on the individual’s employment status and how much they earn. These factors dictate the applicable National Insurance category letters for the employee and employer. The rates for each category letter are shown in the tables below:
Employee National Insurance contribution rates
| Category letter | £123 to £242 (£533 to £1,048 a month) | £242.01 to £967 (£1,048.01 to £4,189 a month) | Over £967 a week (£4,189 a month) |
| A | 0% | 8% | 2% |
| B | 0% | 1.85% | 2% |
| C | N/A | N/A | N/A |
| D | 0% | 2% | 2% |
| E | 0% | 1.85% | 2% |
| F | 0% | 8% | 2% |
| H | 0% | 8% | 2% |
| I | 0% | 1.85% | 2% |
| J | 0% | 2% | 2% |
| K | N/A | N/A | N/A |
| L | 0% | 2% | 2% |
| M | 0% | 8% | 2% |
| N | 0% | 8% | 2% |
| S | N/A | N/A | N/A |
| V | 0% | 8% | 2% |
| X | N/A | N/A | N/A |
| Z | 0% | 2% | 2% |
Example – employee NICs on earnings of £1,000 per week
If an employee is assigned category A and they earn £1,000 per week, the following National Insurance contributions will be deducted from their gross wages:
- no NICs payable on the first £242 per week
- 8% (£58) on their weekly earnings between £242.01 and £967 (8% of £725)
- 2% (£0.66) on the remaining earnings above £967 (2% of £33)
The total Class 1 contributions payable by the employee will be £58.66 per week.
Employer National Insurance contribution rates
| Category letter | £123 to £175 (£533 to £758 a month) | £175.01 to £481 (£758.01 to £2,083 a month) | £481.01 to £967 (£2,083.01 to £4,189 a month) | Over £967 a week (£4,189 a month) |
| A | 0% | 13.8% | 13.8% | 13.8% |
| B | 0% | 13.8% | 13.8% | 13.8% |
| C | 0% | 13.8% | 13.8% | 13.8% |
| D | 0% | 0% | 13.8% | 13.8% |
| E | 0% | 0% | 13.8% | 13.8% |
| F | 0% | 0% | 13.8% | 13.8% |
| H | 0% | 0% | 0% | 13.8% |
| I | 0% | 0% | 13.8% | 13.8% |
| J | 0% | 13.8% | 13.8% | 13.8% |
| K | 0% | 0% | 13.8% | 13.8% |
| L | 0% | 0% | 13.8% | 13.8% |
| M | 0% | 0% | 0% | 13.8% |
| N | 0% | 0% | 13.8% | 13.8% |
| S | 0% | 0% | 13.8% | 13.8% |
| V | 0% | 0% | 0% | 13.8% |
| X | N/A | N/A | N/A | N/A |
| Y | 0% | 0% | 0% | 13.8% |
Example – employer NICs on employee earnings of £1,000 per week
If an employee is assigned category A and they are paid £1,000 per week, the following employer National Insurance contributions will be payable on their gross wage:
- no employer NICs on the first £175 per week
- 13.8% employer NICs (£113.85) on the employee’s weekly pay between £175.01 and £1,000 (13.8% of £825)
The total Class 1 contributions payable by the employer will be £113.85 per week.
Class 1A and Class 1B rates
Employers must also pay Class 1A and 1B National Insurance on any employee expenses and benefits they provide. The current rate for the 2024-25 tax year is 13.8%. Class 1A contributions are also payable on certain other lump sums, such as redundancy payments.
Does payroll software update NI category letters automatically?
Occasionally, employers may need to change an employee’s National Insurance category letter partway through the tax year. This requirement will arise if the employee’s circumstances change, for example:
- they reach the age of 21
- if they’re an apprentice and they turn 25 or their statutory apprenticeship stops
- they reach the State Pension age
- they’re no longer eligible to defer National Insurance contributions
Payroll software should automatically change the NI category letter and rate for employees once they turn 21. However, for other circumstances, the employer will need to manually adjust the rate before processing payroll.
Do I need to pay employer National Insurance?
All employers must pay employer (secondary) Class 1 National Insurance on the gross earnings of any employee paid more than £175 per week. The rate payable in the 2024-25 tax year is 13.8%.
However, as announced at the 2024 Autumn Budget on 30 October 2024, the rate of employer NICs will increase to 15% from 6 April 2025. The secondary threshold (the point at which employer NICs apply) will drop from £175 per week (£9,100 per year) to £96 per week (£5,000 per year).
Employers must pay their Class 1 contributions through Pay As You Earn (PAYE) monthly or quarterly. This liability will be included in the employer’s PAYE bill alongside the following (where applicable):
- Employee Income Tax deductions and NICs
- Class 1 and 1B National Insurance
- Class 1A National Insurance on termination awards and sporting testimonials
- Student Loan repayments
- Construction Industry Scheme (CIS) deductions
- Apprenticeship Levy payments
Employers must also pay Class 1A National Insurance on any work benefits they provide to their employees. These contributions are paid separately after the end of the tax year.
How to work out employees’ National Insurance liabilities
Your payroll software should be able to automate the calculations of Income Tax and National Insurance payable to HMRC, including any employer NICs due on employees’ earnings above £175 per week. Using software reduces the risk of errors and saves time.
You can also use HMRC’s online calculators and tax tables to manually check PAYE tax, work out employee National Insurance contributions, director NICs, and Student and Postgraduate Loan deductions.
These HMRC resources are also helpful if you want to run ‘what if’ calculations to model various scenarios, determine the potential impact of these values, and logically compare data.
Thanks for reading
Please leave a comment below if you have any questions about this post. For more small business advice and limited company guidance, explore the Rapid Formations Blog.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
is it Legal for Anchor Hanover housing to charge tenants the new Increase to the National insurance contributions to be implemented by the government?
we (independent living tenant} are being charged between £1.25 and £ 3.00 a month by Anchor to cover the new National insurance charge Surely this is illegal?
Anchor have added this above amount to our services charge currently for 2024 to April 2025 £135 per month
Can they do this ? if so how can they do it the new N.I. is a charge on EMPLOYERS not tenants
Thank you for your kind comment.
Unfortunately as we are not regulated to provide legal advice, we are unable to provide advice on specific scenarios. We would recommend contacting a solicitor for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The Rapid Formations Team
Excellent article! This guide on national insurance category letters provided me with some tips for my own financial services UK business.
Thank you for your comment, David. We’re glad to hear our guide was helpful for your own financial services UK business.
Kind regards,
The Rapid Formations Team