You won’t ever need to apply category X yourself. When you set up an employee, specify the NI category they would usually be on. Ensure you enter the correct NI number for the employee.
Using the employee’s earnings in the pay run, payroll applies the correct NI category. Where necessary payroll reports this to HMRC.
If the employee’s earnings remain below the LEL in the pay run, payroll applies category X. This is because the employee is not liable for NI contributions.
Usually, payroll reports employee NI contribution details to HMRC at the end of a pay run. With category X employees, payroll doesn't submit their NI contribution details to HMRC.
You can find further information on the HMRC website.