National Insurance payments have increased for millions of workers across the UK today. The money raised by the 1.25 percentage point increase will be spent on the NHS, health and social care in the UK.
According to the Department for Health, the number of people waiting for elective care in England has risen from 4.4 million before the pandemic to six million. Boris Johnson said the manifesto-breaking tax hike is a “necessary, fair and responsible” way of raising funds for the "biggest catch-up programme in the NHS’ history".
The tax rise could raise £39 billion over the next three years, helping to reduce NHS backlogs which have been exacerbated by the coronavirus crisis. The extra cash will reduce waiting times and deliver millions more scans, tests and operations, according to the government.
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Health secretary Sajid Javid justified the tax increase, arguing that funding health and social care through borrowing would not just be “economically wrong” but also “morally wrong”. “The choice for us as a country is we either put that money in ourselves now, and if we don’t do it ourselves, we will have to borrow it," he said. "And that is mortgaging the future of our children and our grandchildren."
Here's everything you need to know about the changes to National Insurance rates and thresholds, how they will affect your paycheck and how you might be able to reduce your payments.
National Insurance payment thresholds
The amount of National Insurance (NI) you pay depends on your salary, and you don't pay anything until you hit the primary threshold. Employees currently have to pay NI on annual earnings above £9,880.
However, the threshold will change during the summer. From July, the primary threshold will increase to £12,570. That means some people will find themselves paying less in National Insurance once the threshold rises. The government says 70 per cent of those who pay National Insurance will pay less from July, while 2.2million people will pay nothing at all.
There is also an upper earnings limit of £50,270. Anything you earn over this upper limit is subject to a different rate of National Insurance.
National Insurance rates for 2022/2023
National Insurance payments have risen by 1.25 percentage points. If you are employed, this will come out of your wages before you are paid and the contributions will show in your payslip. Self-employed people pay national insurance depending on their profits and employers also pay NI contributions.
Employees would previously pay 12 per cent on earnings up to the upper limit of £50,270 and 2 per cent on anything above that threshold. But from today, April 6, the rate goes up to 13.25 per cent and 3.25 per cent respectively. For the self-employed, rates will go up from 9 per cent and 2 per cent to 10.25 per cent and 3.25 per cent.
The Institute for Fiscal Studies (IFS) calculates that, taking the rate hike and threshold increase together, it will mean a fall in the National Insurance bill for those earning less than £35,000 for the 2022/23 tax year compared to the previous year. For example, someone earning £30,000 a year currently pays £204 a month in NI contributions. This will rise to £222 a month when the 1.25 percentage point increase comes in. However, when the threshold changes in July, the payments will drop to £192.
Here is how your National Insurance is changing, according to figures from the IFS:
£20,000 annual pay
Last tax year NI contributions would have been £104. From April 6, they will be £112. From July 6, they will be £82.
£30,000 annual pay
Last tax year NI contributions would have been £204. From April 6, they will be £222. From July 6, they will be £192.
£40,000 annual pay
Last tax year NI contributions would have been £304. From April 6, they will be £333. From July 6, they will be £303.
£50,000 annual pay
Last tax year NI contributions would have been £404. From April 6, they will be £443. From July 6, they will be £413.
£60,000 annual pay
Last tax year NI contributions would have been £423. From April 6, they will be £472. From July 6, they will be £443.
£70,000 annual pay
Last tax year NI contributions would have been £440. From April 6, they will be £499. From July 6, they will be £470.
£80,000 annual pay
Last tax year NI contributions would have been £457. From April 6, they will be £526. From July 6, they will be £497.
£90,000 annual pay
Last tax year NI contributions would have been £473. From April 6, they will be £554. From July 6, they will be £524.
£100,000 annual pay
Last tax year NI contributions would have been £490. From April 6, they will be £581. From July 6, they will be £551.
Do pensioners pay National Insurance?
You pay mandatory National Insurance if you’re 16 or over and are either an employee earning above £184 a week, or self-employed and making a profit of £6,515 or more a year. However, once you reach State Pension age, you no longer need to keep paying National Insurance.
What happens next year?
From April 2023 onwards, the NI rate will decrease back to the 2021-22 level. and a new 1.25 per cent health and social care levy will be legally introduced.
The UK government predicts that the tax rise will raise £39 billion over the next three years to help reduce the Covid-induced NHS backlog and later reform adult social care for the long-term. The government argues the levy is progressive, with the highest 15 per cent of earners paying more than half the revenues.
How do salary sacrifice schemes work and could they reduce NI payments?
Salary sacrifice schemes allow employers to reduce an employee’s salary and pay the equivalent amount into a non-cash benefit, such as pension contributions or a cycle-to-work scheme.
Adrian Lowery, personal finance expert at investing platform Bestinvest, said: “An employer could agree to contribute a greater proportion of your salary into your workplace pension, in lieu of pay. While pension contributions always benefit from income tax relief, if this system is used then national insurance relief is also obtained.” He said there are downsides, however, to reducing your salary, such as decreased mortgage affordability.
Myron Jobson, senior personal finance analyst at interactive investor, warned: “A lower salary can affect entitlements such as maternity/paternity pay, mortgage applications based on one’s income, and some state allowances. As such, people should always consider how such benefits could impact their finances more broadly.”
How to calculate cost of living
The National Insurance hike is not the only change affecting bank balances from this month. The cost of living has skyrocketed due to the energy price cap increase, the annual council tax rise and higher train fares and food costs.
The Manchester Evening News has created a handy cost of living calculator to predict how much your bills will be changing this month. You can use it to check how much your National Insurance payments may rise or fall.
Use the widget below to see how much your bills could be affected.
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