Working out your NI liability as an employer can be stressful, especially since there’s not actually a one-size fits all contribution rate for every employee. NI categories dictate the rate of employee and employer national insurance liability, which is why it’s important to understand what each letter refers to. This blog post walks you through what each NI category letter means and how much you and your employees need to contribute.
National Insurance Number
Before we look at NI categories, it’s important to understand that employees’ NI numbers and categories are different. Every employee’s national insurance number is unique. It can be confusing when looking at NI numbers and people often ask what the various letters and numbers mean. NI numbers are composed of 2 letters, 6 numbers and another letter on the end. It’s important to note that the final letter of an employee’s NI number has nothing to do with their NI category.
Why is the NI category letter important for payroll?
An employee’s NI category letter indicates both the employer and employee’s NI liability. Each NI category letter corresponds to a different percentage contribution. And since an employee’s NI contribution is automatically deducted from their pay, it’s critical that employers know which category their employees fall under and how much they have to pay. Luckily, the majority of employees will fall under NI Code A. And if an employee doesn’t fit into any other category, they’ll also default to category A.
What are the different National Insurance categories?
| Category letter | Employee Group |
| A | All employees apart from those in groups |
| B | Married women and widows entitled to pay reduced NI |
| C | Employees who are over the State Pension age |
| H | Apprentices under 25 |
| J | Employees who can defer National Insurance because they’re already paying it in another job |
| M | Employees under 21 |
| V | Employees who are working in their first job since leaving the armed forces (veterans) |
| Z | Employees under 21 who can defer National Insurance because they’re already paying it in another job |
| X | Employees who do not have to pay NI, including those who live abroad in certain countries such as in the EU. |
NI Category Letters for Employees who Work in Freeports
The below four category letters are for employees who work in freeports:
| 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 reduced NI |
| L | Employees who work in freeports and can defer NI because they’re already paying it in another job |
| S | Employees who work in freeports and are over the State Pension Age |
Contributions for each category
As we mentioned, each NI category letter corresponds to a different rate of NI contribution. The following table from the government website outlines the various employee liabilities for each category:
Employee NI rates for tax year 2023/24
The following table tells you the NI percentage contribution each category has to pay for the tax year starting 6 April 2023 :
Weekly income
Monthly income | £123 to £242
£533 to £1048 | £242.01 – £967
£1,048 – £4,189 | above £967
above £4,189 |
| A | 0% | 8% | 2% |
| B | 0% | 3.85% | 2% |
| C | nil | nil | nil |
| F | 0% | 8% | 2% |
| H | 0% | 8% | 2% |
| I | 0% | 3.85% | 2% |
| J | 0% | 2% | 2% |
| L | 0% | 2% | 2% |
| M | 0% | 8% | 2% |
| S | nil | nil | nil |
| V | 0% | 2% | 2% |
| Z | 0% | 2% | 2% |
Employer NI contributions
Employers also need to make a different NI contribution depending on their employee’s NI category:
| Category | £123 – 2175 (£533 = £758 a month) | £175.01 – £481 (£758.01 – £2,083 a month) | £481.01 – £967 (£2,083.01 – £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% | 113.8% |
| 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% |
| L | 0% | 0% | 13.8% | 13.8% |
| M | 0% | 0% | 0% | 13.8% |
| S | 0% | 0% | 13.8% | 13.8% |
| V | 0% | 0% | 0% | 13.8% |
| Z | 0% | 0% | 0% | 13.8% |
Who is exempt from NI contributions?
Certain employees may be exempt from national insurance contributions, here is a brief guide:
Employees who are 16 and under
Employees under the age of 16 do not have to pay compulsory NI.
Employees over the State Pension Age
Employees over the State Pension Age do not have to make NI contributions.
Certain employees working abroad
Depending on where they are working, certain employees may not be liable to pay NI in the UK because they have to pay social security in the country in which they are living. It’s advisable to seek guidance depending on the country in question.
How to work out your NI liability for different NI categories
Working out your employees’ NI contributions and your own liability doesn’t need to be complicated. You can use our straightforward NI calculator to estimate how much you need to deduct from your employees’ pay and how much you need to contribute. If you’ve got a unified payroll software like Zelt in place, however, then all these calculations are taken care of automatically. Your employees will have instant and transparent access to their payslips, so they can understand exactly how much has been deducted and why. This helps you provide a better employee experience, build a relationship of trust with employees, and also reduce the amount of manual admin work they need to do (which, let’s face it, is among the most hated office tasks of today’s desk workers).
Sources
https://www.gov.uk/national-insurance-rates-letters/category-letters
https://www.gov.uk/national-insurance-rates-letters