Income Tax vs National Insurance
Discover why the UK government levies two separate deductions on paychecks, how their thresholds intersect, and how they impact take-home pay.
Direct Answer: Comparing the Two Deductions
Income Tax is a general progressive tax on total income that funds general public services like schools, healthcare, and infrastructure. National Insurance (NI) is a contributory levy primarily on earned employment income that builds entitlement to the UK State Pension and statutory benefits.
Dual Deduction System
Why UK payslips feature two distinct statutory deductions on employment income.
Devolved vs UK-Wide
Income tax rates vary in Scotland, while National Insurance rates remain uniform across the UK.
Benefit Entitlement
How National Insurance contributions qualify workers for State Pension and statutory benefits.
Key Differences at a Glance (2026/27)
| Feature | Income Tax | National Insurance (Class 1) |
|---|---|---|
| Primary Purpose | General government revenue | Contributory social security & state pension |
| Devolution | Rates devolved to Scotland; rest of UK set by Westminster | Uniform across all 4 nations of the UK |
| Tax-Free Threshold | £12,570 (Personal Allowance, tapers >£100k) | £12,570 (Primary Threshold, no taper) |
| Main Rate | 20% Basic (or Scottish progressive tiers) | 8% (£12,570 to £50,270) |
| Higher Earnings Rate | 40% and 45% (rises with income) | 2% above £50,270 (drops with income) |
See Your Estimated Tax and NI Split
Calculate your combined deductions with Formulexa's interactive UK Salary After Tax Calculator.