Definition
Letter codes assigned to employees that determine the rate of National Insurance contributions for both employer and employee. The category depends on the employee's age, employment type, and whether they are in a contracted-out pension scheme.
UK Context
HMRC assigns NI category letters based on the employee's circumstances. Category A is the standard letter for most employees. Category H applies to apprentices under 25. Category M applies to employees under 21. Category C applies to employees over State Pension age who are exempt from employee contributions.
Best Practices
- Review NI category letters when employees reach age thresholds (21, 25, State Pension age)
- Apply the correct category letter from the employee's start date based on their circumstances
- Update category letters promptly when an employee's circumstances change
Frequently Asked Questions
What is the most common NI category letter?
Category A is the most common, applying to the majority of employees aged 21 and over who are not apprentices. It carries the standard employer and employee NIC rates.
When does an employee's category letter change?
Category letters change automatically at age thresholds. For example, an employee on Category M (under 21) moves to Category A when they turn 21. An employee reaching State Pension age moves to Category C, meaning they no longer pay employee NICs.