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Taxation (UK) · Income from employment

National Insurance Contributions for ACCA TX-UK

Updated 11 October 2026 · Fact-checked

National insurance contributions (NIC) are payroll and self-employment charges separate from income tax. Employees pay Class 1 primary at 8% and 2%. Employers pay Class 1 secondary at 15% above £5,000 and Class 1A at 15% on benefits. The self-employed pay Class 4. Apply the rates in the tax tables to the right base.

Understand National Insurance Contributions

NIC is a separate tax from income tax. It is charged on earnings, not on total income, and it has its own rates and thresholds. For TX-UK you learn four classes in this topic: Class 1 primary, Class 1 secondary, Class 1A and Class 4.

Class 1 primary is paid by the employee. It is deducted from cash earnings through payroll. In the tax tables it is nil on the first £12,570 a year, 8% on earnings from £12,571 to £50,270, and 2% above £50,270. Taxable benefits in kind are not subject to Class 1 primary.

Class 1 secondary is paid by the employer on the same cash earnings. The rate is nil up to £5,000 a year and 15% above that. It is an extra cost to the employer, so it does not reduce the employee's pay. Employers may also claim the employment allowance of £10,500, which reduces their total Class 1 secondary bill for the year. It cannot go below zero.

Class 1A is paid only by the employer, at 15%, on taxable benefits provided to employees and directors. There is no threshold and no employee charge. You apply the 15% to the same benefit amount used for income tax.

Class 4 is paid by the self-employed on their taxable trading profits. It is nil on the first £12,570, 6% from £12,571 to £50,270 and 2% above that. It is separate from Class 1. Class 2 is covered on its own page.

Key rules to remember

Class 1 primary (employee)
8% × (earnings between £12,570 and £50,270) + 2% × (earnings above £50,270)
Applied to annual cash earnings. Nil on the first £12,570. Nothing is charged on benefits in kind.
Class 1 secondary (employer)
15% × (earnings − £5,000)
Only where earnings exceed £5,000 a year. Apply it to each employee separately, then total.
Employment allowance
Class 1 secondary payable = total secondary − £10,500 (minimum nil)
The allowance is £10,500 a year. It offsets Class 1 secondary only, not Class 1A or Class 4.
Class 1A
15% × total taxable benefits
Paid by the employer only. No threshold. Use the taxable benefit figure after any employee contribution.
Class 4
6% × (profits between £12,570 and £50,270) + 2% × (profits above £50,270)
Paid by the self-employed on taxable trading profits. Nil on the first £12,570.

How to solve National Insurance Contributions questions

Use this method for any NIC question. Always decide who pays and on what before you calculate.

  1. 1Identify the person: employee, employer, or self-employed individual.
  2. 2Pick the class: cash earnings give Class 1, benefits give Class 1A, trading profits give Class 4.
  3. 3Identify the base: annual cash earnings (salary, bonus), the taxable benefit total, or taxable trading profit.
  4. 4Apply the bands from the tax table to the base. Use the employee thresholds for primary, and £5,000 for secondary.
  5. 5Deduct the employment allowance of £10,500 from the total Class 1 secondary where the employer is eligible, but not below nil.
  6. 6Add Class 1A separately. Do not reduce it by the employment allowance.
  7. 7Round to the nearest £ if asked, and label each class clearly in your answer.

Quickest way: Band shortcut for NIC

When to use it: Use when earnings are above £50,270 and the full calculation feels long.

  1. Employee: the maximum 8% slice is £50,270 − £12,570 = £37,700, which is £3,016. Add 2% of earnings above £50,270.
  2. Employer: take earnings minus £5,000, then multiply by 15%.
  3. Class 4: the maximum 6% slice is also £37,700, which is £2,262. Add 2% of profits above £50,270.
  4. Class 1A: total the benefits and multiply by 15%.

Common mistakes in National Insurance Contributions

  • Charging Class 1 on benefits in kind.

    Students link benefits with employment income and assume NIC works like income tax.

    Fix: Class 1 is only on cash earnings. Benefits attract Class 1A, paid by the employer.

  • Using £12,570 as the employer threshold.

    The employee and employer thresholds are mixed up.

    Fix: Employer Class 1 starts above £5,000. Write both thresholds beside your working.

  • Applying the employment allowance to Class 1A.

    Students think it reduces all employer NIC.

    Fix: In this guide the allowance reduces Class 1 secondary only. Deduct it before adding Class 1A.

  • Letting the employment allowance create a negative figure.

    Secondary NIC is smaller than £10,500 and students subtract anyway.

    Fix: The payable amount cannot go below nil. Write 'minimum nil' in your working.

  • Using 8% on all earnings above £12,570.

    Students forget the drop to 2% above £50,270.

    Fix: Split earnings into slices: £12,570 to £50,270 at 8%, then the excess at 2%.

  • Applying Class 4 to total income instead of trading profits.

    Students use the income tax computation total.

    Fix: Use the taxable trading profit after adjustments and capital allowances, before personal allowance.

Worked examples

Example 1

Ravi is employed on a salary of £60,000 a year. His employer provides a taxable benefit of £4,000. Calculate Ravi's Class 1 primary NIC, the employer's Class 1 secondary NIC for Ravi before any employment allowance, and the employer's Class 1A NIC on the benefit.

Show the solution
  1. Class 1 primary: £50,270 − £12,570 = £37,700 at 8% = £3,016.
  2. Earnings above £50,270: £60,000 − £50,270 = £9,730 at 2% = £194.60.
  3. Total primary = £3,016 + £194.60 = £3,210.60, so £3,211.
  4. Class 1 secondary: £60,000 − £5,000 = £55,000 at 15% = £8,250.
  5. Class 1A: £4,000 × 15% = £600.

Answer: Class 1 primary is £3,211 (rounded). Class 1 secondary is £8,250. Class 1A is £600.

Example 2

Mira runs a company with three employees. Total Class 1 secondary NIC for the year is £14,300, and taxable benefits provided total £8,000. Calculate the employer's NIC payable after the employment allowance. Then calculate the Class 4 NIC for a sole trader with taxable trading profits of £70,000.

Show the solution
  1. Class 1 secondary after allowance: £14,300 − £10,500 = £3,800.
  2. Class 1A: £8,000 × 15% = £1,200. The employment allowance is not set against it.
  3. Total employer NIC = £3,800 + £1,200 = £5,000.
  4. Class 4 at 6%: (£50,270 − £12,570) = £37,700 × 6% = £2,262.
  5. Class 4 at 2%: (£70,000 − £50,270) = £19,730 × 2% = £394.60.
  6. Total Class 4 = £2,262 + £394.60 = £2,656.60, so £2,657.

Answer: Employer NIC payable is £5,000 (£3,800 Class 1 secondary plus £1,200 Class 1A). Class 4 NIC is £2,657 (rounded).

Exam tips

  • In objective test questions, read who is paying. The same earnings give different answers for employee and employer.
  • Show each band as a separate line in Section C. Method marks are earned even if one rate is wrong.
  • Check the question for whether the employment allowance is available. Apply it to Class 1 secondary only.
  • Class 1A uses the same benefit figure as the income tax calculation, so work out the benefits first.
  • Learn the rates from the tax tables provided in the exam, but practise so you know which table row is which.

Practice questions from Income from employment

National Insurance Contributions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

National Insurance Contributions: frequently asked questions

What is the difference between Class 1 and Class 4 NIC?

Class 1 applies to employees and employers on earnings from employment. Class 4 is paid by the self-employed on their taxable trading profits. The primary Class 1 and Class 4 bands are similar, but the rates differ: 8% and 6% in the main band, and 2% above £50,270 for both.

How do I calculate employer NIC?

Take each employee's annual cash earnings, deduct £5,000, and multiply the balance by 15%. Add the results for all employees. Then deduct the employment allowance of £10,500, but not below nil. Add Class 1A on benefits separately.

Is Class 1A NIC paid by the employee?

No. Class 1A is paid only by the employer. It is 15% of the taxable benefits provided, with no threshold. The employee pays income tax on the benefit but no NIC on it.

Does the employment allowance reduce Class 1A?

In the way TX-UK tests it, no. The allowance of £10,500 reduces Class 1 secondary contributions only. Calculate Class 1A separately and add it afterwards.