PAYE and NI calculator, 2026/27

How this is calculated

Income tax applies the 2026/27 bands: no tax on the first £12,570, 20% between £12,570 and £50,270, 40% up to £125,140, and 45% above that, with the personal allowance reduced by £1 for every £2 of income over £100,000. Employee NI is charged at 8% on earnings between the £12,570 primary threshold and £50,270 upper earnings limit, dropping to 2% above the upper limit.

Employer NI, which the employee never sees but which is a real payroll cost, is charged at 15% on earnings above the £5,000 secondary threshold for 2026/27, with no upper limit, making it an important figure for budgeting the true cost of employing someone.

PAYE and NI explained

PAYE (Pay As You Earn) is the system HMRC uses to collect income tax and National Insurance directly from wages before they reach the employee, based on a tax code that reflects the employee's allowances and any deductions such as company benefits. Employers are legally responsible for calculating, deducting and paying these amounts over to HMRC each pay period, and for keeping accurate records through Real Time Information reporting.

Employer NI is separate from employee NI and does not reduce the employee's pay; it is an additional cost on top of gross salary, calculated using the secondary threshold and rate, and is one of the largest hidden costs of employment that businesses need to budget for.

What this means for employers and directors

When budgeting for a new hire, the true cost of employment is gross salary plus employer NI plus any employer pension contribution, not just the advertised salary figure. Directors paying themselves a low salary and topping up with dividends should also check where their salary sits relative to the NI thresholds, since a salary at or just above the £12,570 primary threshold can secure a qualifying year for the state pension at minimal NI cost.

What is the difference between employee and employer NI?

Employee NI is deducted from the worker's gross pay and reduces their take-home amount. Employer NI is an additional cost paid on top of gross salary by the employer and does not affect the employee's payslip.

What salary avoids employer National Insurance?

For 2026/27, no employer NI is due on salary up to the £5,000 secondary threshold; above that, 15% applies, though the employment allowance can offset the first £10,500 of employer NI for eligible small employers.

Is the 2% NI rate above £50,270 correct?

Yes, for 2026/27, earnings above the £50,270 upper earnings limit attract employee NI at 2% rather than 8%, which is why net pay rises proportionally faster once a salary passes that threshold.

Does a director's salary work the same way as an employee's?

The calculation method is the same, though directors have the option of an annual, rather than cumulative, NI calculation basis, which can smooth NI liabilities across the year for irregular pay patterns.