National Insurance
*This information has been updated to reflect the changes to National Insurance from 6th January 2024 and 6th April 2024.
Details on the calculation of National Insurance Contributions (NI) are contained within Her Majesty’s Revenue & Customs (HMRC) on-line guidance and the online Basic PAYE Tools.
Specific HMRC information can be found at:
The calculation of NI is automated within SDWorx-Pay with client options to override, vary or change values. Two permitted methods of NI calculation are offered being the:
- Exact percentage method and
- Table method.
Please note that directors are always operated using the exact percentage method. Mariners are only offered the exact percentage method within the SD Worx solution.
NI Earnings Bands
Since April 2016, the recorded NI Earnings Bands are:
- Earnings at the LEL (Lower Earnings Limit)
- Earnings above the LEL, up to and including the PT (Primary Threshold)
- Earnings above the PT, up to and including the UEL (Upper Earnings Limit)
- Earnings above the UEL
Although the Primary Threshold (PT) and Secondary Threshold (ST) are referenced for use in the calculation of National Insurance, only the Primary Threshold is used for NI recording purposes. The Freeport Upper Secondary Threshold (FUST) does not align with the UEL. The Upper Secondary Threshold (UST) which is used for Under 21 NI calculations, and the Apprentice Upper Secondary Threshold (AUST) used for apprentices under the age of 25, and Veterans Upper Secondary Threshold (VUST) for use in their first year of employment continue to match the UEL and equally are not used for recording purposes.
*Reduction in employee NICs by 2% from 6th January 2024
The Autumn Statement 2023 announced a reduction in the main primary NI rates of 2% and a new blended rate for directors.
Employers will need to take care when making correction for prior periods from 6th January 2024.
Apprenticeship Levy – Paybill (or earnings for Secondary NI)
For the calculation of the Apprenticeship Levy (applicable since 6th April 2017), there is a need for the accumulation of earnings at employee level that are subject to secondary NI assessment. This would include amounts under the Lower Earnings Limit which may not normally be recorded for NIC purposes, but equally exclude earnings for foreign workers who have no UK secondary NI liability and employers with secondary NI exemptions (such as diplomatic missions).
To facilitate the calculation of the employer Apprenticeship Levy as part of the Tax Reference Reconciliation Summary, at employee level a new earnings accumulation field containing the individual Paybill is introduced and populated automatically as part of the ongoing pay calculations. When undertaking any manual payments, it is important that the appropriate adjustments are also performed to ensure that the correct Paybill earnings are maintained.
Termination Payments and Sporting Testimonials Class 1A
Any amounts of termination payments or Sporting Testimonials which were previously subject to Income Tax, but not liable to Class 1 National Insurance have changed
Since 6th April 2020, such payments are subject to a payroll applied Class 1A liability. This calculation does not apply to the payrolling of benefits in kind.
NI Category Letters
National Insurance is assessed against employees/directors by referenced to an entered NI Category letter. SD Worx Pay will make certain assumptions where an NI category is incorrectly missing due to user error. SD Worx Pay will also validate at the point of each payment that the category letter remains applicable by using the employee date of birth and any relevant apprenticeship dates.
| NI Category letter | Description |
| A | Standard rate for those 21 or over and under state pension age |
| B | Married women and widows entitled to pay reduced NI |
| C | For those who have reached the state pension age |
| H | Apprentices under 25 |
| J | CA2700 certificate holder – deferred NI |
| M | Employees under the age of 21 |
| Z | Under 21-year-old CA2700 certificate holder – deferred NI |
| The following relate to mariners NICs | |
| G | Mariners – Apprentices under 25 |
| P | Mariners – under the age of 21 |
| Q | Mariners – CA2700 certificate holder – deferred |
| R | Mariners – Standard rate for those 21 or over and under state pension age |
| T | Mariners – Married women and widows entitled to pay reduced NI |
| W | Mariners – For those who have reached the state pension age |
| Y | Mariners – Under 21 standard rate |
| The following relate to Freeport NICs | |
| F | Freeport – Standard rate for those 21 or over and under state pension age |
| I | Freeport – Married woman and widows entitled to pay reduced National Insurance Contributions |
| L | Freeport – CA2700 certificate holder – deferred NI |
| S | Freeport – For those who have reached the state pension age |
| The following relates to Veterans NICs | |
| V | Veterans – Standard rate contributions |
| The following relates to Investment Zones NICs from 6th April 2024 | |
| N | Investment Zone – Standard rate for those 21 or over and under state pension age |
| E | Investment Zone – Married woman and widows entitled to pay reduced National Insurance Contributions |
| K | Investment Zone – CA2700 certificate holder – deferred NI |
| D | Investment Zone – For those who have reached the state pension age |
NI and Pay Data
The following are the standard SD Worx Pay data entries and descriptions used for Employee (not directors) National Insurance Contributions (NI):
| Name | Engine code |
| Current NI letter | N001 |
| National Insurance number (NINO) | N003 |
| Pay for additional NI contribution | N061 |
| Pay for additional NI refund | N062 |
| Amount of Gross Pay for a new starter that applied to the prior payment period | N091 |
| *The following must only be used for pay period from 6th January 2023 through 5th April 2023 where a correction is being made for a prior payment from 6th April 2023 through 5th January 2024 | |
| Pay for additional NI contribution From 6th January 2024 payments this item can be used to correct calculation that relates to 6th April 2023 through 5th January 2024 only | N071 |
| Pay for correcting NI refund From 6th January 2024 payments this item can be used to correct calculation that relates to 6th April 2023 through 5th January 2024 only | N072 |
Date of birth for age related NICs
The following additional employee information is required to operate National Insurance Contributions (NI) for employees Under 21, Apprentices under the age of 25 and employees over the State Pension Age:
| Name | Engine code |
| Date of Birth | E080 |
Apprentices
For the operation of NI for an Apprentice under the age of 25, additional employee information is required:
| Name | Engine code |
| Apprenticeship Start Date (required for apprentices) | E087 |
| Apprenticeship End Date (optional) | E088 |
Please note that under 25 apprentice NI will end on the first payment following either turning 25 or the Apprenticeship End Date.
Veterans
For the operation of NI for a Veteran, additional information is required to inform the pay calculation when the Veteran concession ends (usually after 1 year following the start of the first employment since leaving the forces:
| Name | Engine code |
| Veterans NI End Date (required for Veterans) | E089 |
Freeports
For the operation of NI for employees within a Freeport area, additional information is required to inform the pay calculation when the Freeport NIC concession ends (usually after 3 years of starting):
| Name | Engine code |
| Freeport and Investment Zone NI End Date (required for Freeport or Investment Zone cases) | E091 |
Directors
The following are the standard SD Worx Pay data entry codes and descriptions for Directors National Insurance Contributions (NI):
| Name | Engine code |
| Current NI letter | N001 |
| NI number | N003 |
| Director’s indicator | N005 |
| Tax week for start of directorship | N202 |
| Director’s gross Earnings to-date | N288 |
| Class 1A Earning (for termination and sporting testimonials only) | N818 |
| PayBill earnings (used for Apprenticeship Levy) | N908 |
Do not use the following employee-based data items for directors: N061, N062, N071, N072, N091 or any code that is associated with an employee and not a director.
Employers with no place of business in the UK
Diplomatic missions
These are additional specialist SD Worx Pay data entry codes and descriptions for National Insurance Contributions (NI):
| Name | Engine code |
| Overseas or diplomatic mission – Employer NI contribution exemption | N006 |
NOTE. These items allow you to manage National Insurance for employees, directors and employers during the tax year when processing payments.
National Insurance History
SD Worx Pay can hold contribution and Earnings for NI totals for up to four contribution letters in any one tax year. The online reporting Gross Earnings Related to National Insurance Contributions lists the Earnings for NI and secondary NI paybill for each employee.
Calculating NI Contributions
At payroll implementation, you will have selected whether to calculate NI contributions using either the exact percentage or table method. If the table method is selected, the employee’s payment frequency, contribution letter, and Earnings for NI this period are used to determine the employer’s and employee’s contribution.
The exact percentage method is always used for calculating directors, mariners, and Class 1A contributions.
Calculating Directors NI
Unlike NI for employees, directors NI is calculated using an annual earnings period. However, there is also an option to use an alternative method of calculating NI on a period by period basis with either a point of leaving or final payment in the tax year annual correction where any residual amount owing on the annual basis is accounted.
Directors NI may change from the alternate non-cumulative method to annual cumulative during the tax year. An example of this is when a director receives a bonus during the year and is waiting for the final tax period to carry out the reassessment. This could lead to a disproportionate amount of NI being payable in the final pay period of the tax year.
Once the calculation method has changed from alternate non-cumulative to cumulative, NI must be calculated by the cumulative method for the rest of the tax year.
However, if a user wishes to change a director from cumulative NI calculation to non-cumulative NI calculation during the tax year, SD Worx Pay will allow this and will issue an exception message to warn the user that they have changed the NI calculation method
DIR NI CHANGED FROM CUM CALC TO NON-CUM – CHECK NI
This will allow a user to change the method of NI calculation if they have set up a director with the wrong method and wish to correct it. If they do this they may need to adjust the NI totals-to-date and Earnings bands; NI calculation will be reconciled at the end of the tax year or the final pay period for the director, but some of the calculations during the tax year may appear incorrect.
SD Worx Pay cannot check for repeated changes between non-cumulative and cumulative NI calculation.
SD Worx Pay will not issue an exception message for change (1); will issue an exception message for change (2), and will not issue an exception message for change (3).
Specific HMRC information on National Insurance for Directors can be found at:
Holidays and NI (see HMRC guide CWG2)
For weekly payrolls only, SD Worx Pay will have been set at payroll implementation to calculate employee and employer NI contributions for holiday periods using one of the three options:
- Method A, where contributions are based on the Earnings for the current week and the Earnings for the holiday weeks separately
- Method B, where contributions are based on the average Earnings across the current week and holiday weeks or
- The cheapest method – either Method A or Method B if its results mean a lower cost to the employee.
In certain rare circumstances HMRC insist on Method A being the only method allowed and in others Method B.
Payments after Leaving and having already issued a P45
Using the employee status marker (see Employee status marker/E001) you can specify that a leaver is to have a payment after leaving, having already been issued with a P45. For a regular payment using E001 P (the payment of normal Earnings of wages), NI is deducted in the normal way; that is, using the same method before the employee left. For an irregular payment using E001 I (one-off amount such as bonus payments), NI is deducted as if based on one week. If a P45 had already been issued, then you must not issue a further P45. If the leaver has not been issued with a P45 yet then use E001 A (an additional payment), the normal tax code and NIC category will be applied and you may now issue a P45. This area is little understood, and the user is directed to look at the detail given by HMRC in the guides on the right
HMRC have produced a YouTube video to help employers correctly process any payments made to employees after they have left their employment, i.e. after P45 has been issued:
Frequency and Pay Periods
The number of pay periods used in the calculation of NI contributions (which are statutory deductions) is defined in the following ways:
At employee level you can override the payroll-level number of periods using the employee-level Override number of pay periods for statutory deductions and advance tax period/E810 or Override number of pay periods for statutory deductions and not advance tax period/E811.
National Insurance Payroll Items
Current NI Letter N001
Use N001 to enter the contribution letter that determines the rate at which NI contributions are to be calculated.
Format
z or blank
Where z is one of the following letters: A, B, C, D, E, F, G, H, I, J, K, L, M, N, R, S, T, W, V or Z.
NI categories in relation to those aged under 21 years of age are: M and Z (mariners only).
For Apprentices under the age of 25 the special NI categories are H and G (mariners only).
For Veterans in their first year of employment: V
For Freeports in therr first three years: F, I, L and S.
For Investment Zones in their first three years: N, E, K and D.
The Value X indicates that the employee is exempt from National Insurance deductions (such as an inbound ex-pat etc.).
Example
The employee is not under 21 or an apprentice
N001 A
Notes
If you in error leave the field blank, SD Worx Pay checks the age (using E080) and apprentice start (E087) and stop dates (E088) to attempt to determine the correct NI category to apply on the indicated payment date on an emergency only basis. It assumes:
Assumes letter H for those who are apprentices under the age of 25
In these cases, SD Worx Pay issues the message Contribution letter not set up – default to x where x is the appropriate letter applied (H, M, C, A).
NI contributions are calculated based on Rates and Earnings Limits set the HMRC and held as system parameters on SD Worx Pay.
The contribution letters G, R, T, W, and Z are reserved for special types of employment (mariner contributions).
SD Worx Pay will validate the age (using E080) of employees to ensure that the NI category letter is appropriate at the point of payment.
NI Number N003
Use N003 to enter the employee’s valid NI number.
Format
aannnnnnx
Where aa are two alphabetic characters, nnnnnn are six numeric characters and x is either A, B, C, or D.
Example
The employee’s NI number is AA453291D:
N003 AA453291D
If your employee does not have an NI number then enter the narrative NONE.
Temporary National Insurance Numbers (prefix TN) are not allowed by HMRC. Temporary COP numbers (format nnXXnnnnn) are not permitted to be entered as National Insurance numbers even if issues in HMRC documentation to the employee or employer.
It is important that you obtain the correct NI number as far as possible. HMRC can help you if required and will attempt to automatically trace and issue a corrective NI number if any used in the Full Payment Submission (FPS) are either missing or incorrect. HMRC may request the automated removal or update of an individual NI Number through Real Time Information (RTI) Electronic Exchange (ElEx) by issuing a NINO Verification Response (NVR) instruction.
Directors Indicator N005
Use N005 to specify the employee as a director and whether any prior employee NIC contributions should not be treated as requiring directors NICs
Format
N006 i/j
Where i can be values C, D, E, F or Z
And where j is used for values D and E as an optional second facet of: blank, N or Y
| Indicator | Description of Facet 1 |
| D | Director using the standard Annual Method |
| E | Director – Alternate Method using the alternate periodic calculation method with last payment in the tax year (leaving or last tax period) reverting to Annual Method |
| Z | Remove director indicator used to correct a mistake for someone who was not a director in the tax year |
Transfer prior employee NICs to be treated as Director NICs
| Indicator | Description of facet 2 |
| blank | Do not transfer employee contributions to be director contributions |
| N | Do not transfer employee contributions to be director contributions |
| Y | Prior employee contributions should have been treated as director contributions, transfer these amounts to directors NICS |
Director to Employee change options
Two additional director indicators are available to provide the ability for automation when a directorship has ended, and the individual is continuing as a non-director. In this instance the HMRC requirement is to continue National Insurance Calculations based on director calculation methods until the end of the tax year. Non-director calculations commence in the new tax year.
| Indicator | Description |
| C | Director becoming an employee – annual directors NI method The individual is no longer a director, however, directors NICs are to continue to be calculated using the annual method until the end of the tax year |
| F | Director becoming an employee – alternate director NI method The individual is no longer a director, however, directors NICS are to continue to be calculated using the alternate method (periodic) until the end of the tax year |
Employer NI Contribution Exemption N006 (Specialist use only)
Some employers that have no place of business in the UK (or EU) and some diplomatic missions or embassies cannot be or are not liable to employer NI although their employees may be liable to employee NI.
If this applies then use N006 to indicate that the employer is exempted from paying normal NI contributions, and that NI contributions are deducted at standard employee rates only.
Please note that this exemption generally does not apply to any employer who is based anywhere in the European Area.
Format
N
Where N is one of the following: X, 0(zero) or space.
Example
The employer does not deduct employer’s NI:
N006 X
Pay for Additional NI Contribution at Current Rates N061 (not to be used for directors)
Pay for Additional NI Refund at Current Rates N062 (not to be used for directors)
Please note that N061 and N062 are not used to correct Directors NI errors. These codes are to enable corrections to be made for employees (non-directors).
Use N061 or N062 to enter a period amount of NI Earnings on which SD Worx Pay is to additionally calculate an employer’s and employee’s contribution or refund using the current NI rates.
Format 1
ppppppppppp
Where ppppppppppp is the amount of Earnings, in pence, up to 11 numeric characters.
Example
The amount of Earnings used to calculate contributions is £745.95:
N061 74595
Format 2
ppppppppppp/z
Where ppppppppppp is the amount of Earnings, in pence, up to 11 numeric characters, and z is the contribution letter.
Example 1
Typically, you will use N061 and N062 when previous contributions have been calculated using the wrong contribution letter. For example, letter A has been used when the employee was an apprentice under the age of 25 but the apprenticeship start date (E087) was not present and letter H should have been used.
N001 H
N061 16000
N062 16000/A
SD Worx Pay then calculates a positive contribution on the correct NI letter based on the gross NI Earnings of £160.00, then a negative contribution (that is, a refund) based on gross NI Earnings of £160.00 for the incorrect letter A. It will also adjust the relevant Paybill (secondary NI earnings) for Apprenticeship Levy purposes.
Tax Week for Start of Directorship N202
Use N202 to enter the tax week in which the employee was appointed a director.
Format
nn
Where nn is the number of the week (01 – 53).
Example
The employee became a director during tax week 37:
N202 37
Enter the tax week that the director was appointed even if the director is monthly paid.
Notes
If you do not enter a week number against N202, the default depends on the payroll frequency:
If you enter a tax week when the director is appointed at a later point, the correct NI contributions will be automatically adjusted.
Director’s Gross Earnings to-date N288 and Director Paybill N908
This facility enables the automated correction of NI calculations for directors.
Use N288 to replace the director’s gross Earnings to-date and N908 to replace the paybill amounts.
Format 1
ppppppppppp
Where ppppppppppp is the director’s new total Earnings for NI to-date, in pence, up to 11 numeric characters.
Example
The director’s total Earnings for NI to-date is changed to £3757.50:
N288 375750
N908 375750
Format 2
ppppppppppp/z
Where ppppppppppp is the director’s new total Earnings for NI to-date, in pence, up to 11 numeric characters, and z is the contribution letter.
Example
The director’s total Earnings for NI to-date is changed to £9755.20, for letter A:
N288 975520/A
N908 975520/A
Notes
Appendix A – Additional NI Data Items
In addition to the standard user data items detailed in the document above, the following are used for processing National Insurance information. These additional Data Items should not be generally used and only with caution. Many of them are only appropriate for correction after the last payment period for the employee in the tax year.
| Engine code | Name |
| N011 | Employee NI to-date increase |
| N012 | Employee NI to-date decrease |
| N018 | Employee NI to-date |
| N051 | Employee Pre-determined NI contribution |
| N052 | Employee Pre-determined NI refund |
| N071 | Earnings for additional contributions at prior rule *Only use for pay periods from 6th January 2024 through 5th April 2024 to correct prior NI for 6th April 2023 through 5th January 2024 instead of N061 |
| N072 | Earnings for refund contributions at prior rule *Only use for pay periods from 6th January 2024 through 5th April 2024 to correct prior NI for 6th April 2023 through 5th January 2024 instead of N062 |
| N081 | Employee additional contribution |
| N082 | Employer additional NI contribution amount |
| N101 | Employer NI to-date increase |
| N102 | Employer NI to-date decrease |
| N108 | Employer NI to-date |
| N161 | Employee Earnings to Date to LEL +Adj |
| N162 | Employee Earnings to Date to LEL –Adj |
| N168 | Employee Earnings to Date to LEL |
| N171 | Employee Earnings to Date to LEL to PT +Adj |
| N172 | Employee Earnings to Date to LEL to PT –Adj |
| N178 | Employee Earnings to Date to LEL to PT |
| Engine code | Name |
| N181 | Employee Earnings to Date PT to UEL +Adj |
| N182 | Employee Earnings to Date PT to UEL -Adj |
| N188 | Employee Earnings to Date PT to UEL |
| N211 | Director’s NI to-date increase |
| N212 | Director’s NI to-date decrease |
| N218 | Director’s NI to-date |
| N221 | Employee Positive adjustment earnings to date above the UEL |
| N222 | Employee Negative adjustment earnings to date above the UEL |
| N228 | Employee Overwrite value earnings to date above the UEL |
| N251 | Director pre-determined NI contribution |
| N252 | Director pre-determined NI refund |
| N281 | Director additional contribution amount |
| N282 | Employer additional NI contribution / director |
| N301 | Employer director’s NI to-date +Adj |
| N302 | Employer director’s NI to-date -Adj |
| N308 | Employer director’s NI to-date |
| N361 | Director Earnings to Date to LEL +Adj |
| N362 | Director Earnings to Date to LEL -Adj |
| N368 | Directors Earnings to Date to LEL |
| Data Items | Name |
| N371 | Director Earnings to Date to LEL to PT +Adj |
| N372 | Director Earnings to Date to LEL to PT –Adj |
| N378 | Director Earnings to Date to LEL to PT |
| N381 | Director Earnings to Date PT to UEL +Adj |
| N382 | Director Earnings to Date PT to UEL – Adj |
| N388 | Director Earnings to Date PT to UEL |
| N405 | Delete NI history for an NI letter |
| N421 | Director Earnings to Date over UEL +Adj |
| N422 | Director Earnings to Date over UEL –Adj |
| N428 | Director Earnings to Date over UEL |
| N801 | Class 1A Contribution to date – Additional |
| Data Items | Name |
| N808 | Class 1A Contribution to date – Replace |
| N811 | Class 1A Earnings to date – Additional |
| N818 | Class 1A Earning to date – Replace |
| N821 | Class 1A Contribution this time – Additional |
| N828 | Class 1A Contribution this time – Replace |
| N831 | Class 1A Earnings this time – Additional |
| N838 | Class 1A Earnings this time – Replace |
| N901 | PayBill Earnings to Date +Adj |
| N902 | PayBill Earnings to Date -Adj |
| N908 | PayBill Earnings to Date |
Last updated 15/5/2026 (PSP)