Is National Insurance Deducted Before Tax

Find out if National Insurance is deducted before tax in the UK and how it affects your salary, PAYE, and take-home pay.

When reviewing your payslip or calculating your take-home pay, it helps to understand how deductions like Income Tax and National Insurance are applied. One of the most common questions employees and business owners ask is whether National Insurance is deducted before tax.

In short, no. National Insurance is not deducted before tax in the UK. Both Income Tax and National Insurance are calculated independently, and neither is deducted from the other. However, both are taken from your gross salary via the PAYE system if you are an employee. They appear as separate items on your payslip and are calculated based on different rules and thresholds.

This article explains how National Insurance works alongside tax, how deductions are applied in order, and what that means for your take-home pay. It also covers how the rules differ for employees, the self employed and company directors.

Understanding Gross Pay and Deductions

To understand when and how National Insurance is deducted, start with the concept of gross pay. This is your total earnings before any deductions are made. From this amount, several deductions may be taken depending on your situation:

  • Income Tax

  • Employee National Insurance contributions (Class 1)

  • Pension contributions (if enrolled)

  • Student loan repayments (if applicable)

  • Other deductions such as salary sacrifice schemes

The order in which deductions are taken matters. While Income Tax is calculated after adjusting for certain reliefs (such as salary sacrifice or pension contributions), National Insurance is based on your gross pay before tax is deducted, and it is not reduced by pension contributions unless paid through a salary sacrifice arrangement.

National Insurance vs Income Tax: The Key Differences

While both are deducted through PAYE for employees, National Insurance and Income Tax operate under separate rules. Here is how they differ:

Income Tax

  • Based on annual income

  • Uses tax bands: basic, higher and additional

  • You receive a personal allowance (usually £12,570)

  • Tax is calculated on income above that allowance

  • Your tax code determines how much tax-free income you can have

National Insurance

  • Based on weekly or monthly earnings

  • Thresholds apply per pay period, not per year

  • No personal allowance like Income Tax

  • Class 1 National Insurance starts at £1,048 per month (2024/25)

  • You pay 8% on earnings between £1,048 and £4,189 per month, and 2% above that

So although Income Tax is calculated on your annual income after allowances, National Insurance is based on your periodic pay with no deductions for allowances unless using salary sacrifice.

How National Insurance Is Calculated

Let’s take an example based on monthly pay.

Gross monthly salary: £3,000

  • National Insurance threshold: £1,048

  • Taxable for NI: £1,952

  • NI at 8%: £156.16

National Insurance is calculated before Income Tax. However, it is not deducted from your taxable income for Income Tax purposes. Both deductions are calculated separately based on your gross pay.

How Income Tax Is Calculated

Using the same monthly salary:

Gross monthly salary: £3,000

  • Annual salary = £36,000

  • Personal allowance = £12,570

  • Taxable income = £23,430

  • Basic rate tax at 20% = £4,686 per year

  • Monthly tax = £390.50

So in this example, the payslip would show:

  • Gross pay: £3,000

  • Income Tax: £390.50

  • National Insurance: £156.16

  • Net pay: £2,453.34

The two deductions are calculated separately. National Insurance is not deducted before tax, and tax is not reduced by your National Insurance contributions.

Pension Contributions and Salary Sacrifice

If your pension contributions are made through a net pay arrangement, they are taken from your gross pay before Income Tax is calculated, which reduces your tax bill. However, these contributions do not reduce the amount of income assessed for National Insurance.

In contrast, if your pension contributions are made through a salary sacrifice arrangement, your gross pay is contractually reduced, and this lower amount is used for both Income Tax and National Insurance. In this case, you do save on both tax and National Insurance.

For example, if you earn £3,000 and sacrifice £200 into your pension:

  • Your taxable pay becomes £2,800

  • You pay less Income Tax and less National Insurance

This is one of the reasons salary sacrifice schemes are popular among higher earners looking to maximise take-home pay.

Directors and National Insurance

Company directors are subject to slightly different rules. While regular employees have National Insurance calculated per pay period, directors can have it calculated:

  1. Cumulatively (annual basis): More accurate over the tax year, as contributions are based on total annual earnings

  2. Non-cumulative (standard method): Similar to other employees, calculated on each payroll cycle

The cumulative method smooths out deductions for directors who receive irregular pay or a low salary with occasional bonuses.

Like other employees, directors’ National Insurance is still not deducted before tax. Each is calculated based on gross earnings and applied independently.

Self Employed National Insurance

If you are self employed, you pay:

  • Class 2 National Insurance: £3.45 per week if your profits exceed £6,725

  • Class 4 National Insurance: 6% on profits between £12,570 and £50,270, and 2% above that

These are calculated when you complete your Self Assessment tax return. They are based on annual profits, not monthly earnings, and are paid alongside your Income Tax. While both are based on your profits, they are still calculated as separate figures. There is no deduction of one from the other.

Do National Insurance Contributions Affect Tax Relief?

National Insurance contributions do not reduce your taxable income. However, contributing through salary sacrifice or claiming allowable deductions like business expenses can reduce your taxable pay and therefore the Income Tax and National Insurance due.

You cannot claim tax relief for National Insurance contributions themselves. They are a fixed liability, not a deductible expense.

Conclusion

National Insurance is not deducted before tax in the UK. It is a separate deduction based on your gross earnings, and it does not reduce your taxable income for Income Tax purposes. Both deductions are applied independently through the PAYE system and appear separately on your payslip.

Understanding the order and method of these calculations helps employees check their payslips for accuracy and helps employers manage payroll correctly. For directors, self employed individuals, and anyone using salary sacrifice or pension arrangements, knowing how each deduction works can lead to smarter financial decisions and better tax planning.

If you are unsure how your deductions have been calculated, or whether you are on the right tax code, it’s always worth speaking to your employer, accountant or payroll provider for clarity.