National Insurance is a contribution paid by both employees and employers in the UK, and it applies in a different form to self-employed individuals as well. Many founders setting up their first business have only experienced it as a payslip deduction, and understanding how National Insurance works in a self-employment context — and what it funds — helps founders plan their finances more accurately.
National Insurance contributions are payments to HMRC that fund state benefits including the State Pension and statutory sick pay entitlements. Self-employed individuals pay contributions on their profits through Self Assessment, with different classes applying depending on the nature and level of their income. Limited company directors who pay themselves a salary also have employee and employer National Insurance obligations processed through payroll.
National Insurance thresholds and rates are set by the government and subject to change — current figures should be verified through HMRC or an accountant. Paying National Insurance contributes to an individual's qualifying years for State Pension purposes, which is relevant for founders planning their retirement. Our guide to National Insurance for UK founders covers how it applies to different business structures.