Finance · Topic 2 of 19
National Insurance
Theory
National Insurance (NI) is a tax paid by employees and employers to fund state benefits, such as the State Pension. In the Higher Applications of Mathematics exam, you will be expected to calculate a worker's NI contributions using the specific figures provided in your data booklet for that year.
1. The "Before Deductions" Rule (The Ultimate Exam Trap)
The most important rule to remember for National Insurance is that it is calculated on a person's salary before any other deductions (such as pension contributions) are taken away.
Crucial Note:
If an exam question tells you someone pays 5% into their pension, you must completely ignore that 5% when calculating their National Insurance.
2. The 2025/26 Tax Year Bands
For the 2026 exam, you will be using the 2025/26 tax year rates. You do not pay a flat percentage on your whole salary; instead, your earnings are split into "chunks" or bands:
- Up to £1,048 a month: You pay 0% on this portion of your earnings.
- Between £1,048 and £4,189 a month: You pay 8% on this specific chunk of your earnings.
- Above £4,189 a month: You pay 2% on anything you earn above this threshold.
Strategy: Always calculate the physical amount of money that sits inside each bracket before you calculate the percentage.
Worked examples
Example 1
Example 1: Basic NI Calculation (Single Band)
Fiona earns a gross monthly salary of £3,400. Calculate her monthly National Insurance contribution for the 2025/26 tax year.
Fiona earns more than £1,048, but less than £4,189, meaning her earnings only cross into the 8% band.
- Find the amount sitting in the 8% band: £3,400 - £1,048 = £2,352.
- Calculate 8% of this amount: 0.08 × £2,352 = £188.16.
Fiona's monthly National Insurance contribution is £188.16.
Example 2
Example 2: Higher Earner Calculation (Multiple Bands)
Gregor is a software engineer who earns a gross monthly salary of £5,800. Calculate his monthly National Insurance contribution for the 2025/26 tax year.
Gregor earns more than £4,189, meaning his earnings stretch across both the 8% and 2% bands.
Calculate the 8% band contribution:
- Find the maximum amount that can fit in this band: £4,189 - £1,048 = £3,141.
- Calculate 8% of this maximum: 0.08 × £3,141 = £251.28.
Calculate the 2% band contribution:
- Find the amount he earns above the upper threshold: £5,800 - £4,189 = £1,611.
- Calculate 2% of this amount: 0.02 × £1,611 = £32.22.
Calculate total NI:
£251.28 + £32.22 = £283.50.
Example 3
Example 3: The Pension Trap (Annual to Monthly)
Chloe earns a gross annual salary of £54,000. She pays 6% of her gross salary into a workplace pension scheme. Calculate her monthly National Insurance contribution for the 2025/26 tax year.
Trap Check: We must completely ignore the 6% pension contribution, as NI is calculated on the salary before pension deductions.
Convert annual to monthly salary:
£54,000 ÷ 12 = £4,500.
Calculate the 8% band contribution:
- Maximum amount in band: £4,189 - £1,048 = £3,141.
- 8% calculation: 0.08 × £3,141 = £251.28.
Calculate the 2% band contribution:
- Amount above threshold: £4,500 - £4,189 = £311.
- 2% calculation: 0.02 × £311 = £6.22.
Calculate total NI:
£251.28 + £6.22 = £257.50.