Nearly 30 million people will see a boost in their next payslip this month when the National Insurance (NI) threshold increases from £9,880 to £12,570 from Wednesday. The change means a typical employee will gain an extra £330 this year from July 6 and could help ease the pressure of mounting bills amid the cost of living crisis.
The move follows a controversial 1.25 percentage point increase in NI in April, to help pay for the Health and Social Care Levy. Seven in 10 (70%) workers who pay National Insurance contributions (NICs) will pay less following the change, even after accounting for the new levy, the UK Government said previously.
Of those who benefit from the threshold increase, 2.2 million people will be taken out of paying NICs altogether, it added. However, Alice Haine, personal finance analyst at investment platform Bestinvest, said a £330 saving “won’t stretch far when you realise that only equates to £27.50 a month”.
She continued: “Yes, every penny counts in this cost-of-living crisis and for some, that £27.50 could be the difference between having dinner every night and sometimes going without.
“For others, however, that amount will barely make a dent in their budgets as they struggle to pay the household bills amid rampant inflation as soaring food, fuel and energy prices become the norm.”
Ms Haine added: “All of this is set against a backdrop of falling real wages where runaway inflation is eroding any pay uplift workers receive, so any saving will quickly be swallowed up.
“Delve deeper in the NI figures, and the saving made in July on NI is actually not that great if you go back in time a little.
“This is because the threshold at which NI kicks in had already increased in April, going from £9,568 to £9,880, with the main rate for employees rising to 13.25% from 12%, as the [UK] Government sought to bolster the NHS and social care by introducing a 1.25 percentage point health and social care levy.
“It means those on lower to middle incomes, earning less than around £35,000 are the biggest gainers this month, as they will see their NI bill cut by more than the amount they pay through the 1.25 percentage point levy.”
She said higher earners will still end up paying more overall.
Analysis by AJ Bell suggests that in the current tax year, people earning around £31,500 or less will be better off under the new system, to varying degrees, although the lowest earners may not have met the threshold for paying NI in any case.
Here is everything you need to know about the changes to the National Insurance threshold increase starting on July 6.
What is National Insurance?
National Insurance is a tax on earnings paid by employees, employers and the self-employed who pay it on their profits. It is used to pay for the NHS, state benefits and the State Pension.
Changes to National Insurance Contributions
The Health and Social Care Levy came into effect on April 6, 2022. This is a 1.25 percentage point increase on National Insurance Contributions designed to support the NHS across the UK.
From April 2023, National Insurance Contributions will return to its previous rate, and the extra tax will be collected as the new Health and Social Care Levy.
This levy will also be paid by people over State Pension age who continue to work.
Who pays National Insurance?
- Employees pay NI on their wages
- Employers also pay extra NICs for staff
- Self-employed pay NI on their profits
National Insurance threshold changes
From July 6 the National Insurance threshold will be the same as the income tax threshold, known as the Personal Allowance.
That means you won’t pay National Insurance or income tax if you earn below £12,570 a year. If you earn more than this, you will still feel the benefit as you will pay less National Insurance overall due to the higher threshold.
Salary and new monthly National Insurance Contributions from July 6
This is how much you will see deducted from your salary every month if you earn:
- £20,000 - £82 (currently £122)
- £30,000 - £192 (currently £222)
- £40,000 - £303 (currently £333)
- £50,000 - £413 (currently £443)
- £60,000 - £443 (currently £472)
- £70,000 - £470 (currently £499)
- £80,000 - £497 (currently £526)
- £90,000 - £524 (currently £554)
- £100,000 - £551 (currently £581)
Online HMRC National Insurance tool
You can use this tool to get an estimate of how the changes to National Insurance Contributions will affect you.
If you’re self-employed the amount of profit you can earn before you pay National Insurance contributions is also increasing. However, you will not be able to use the tool to get an estimate.
Before you use the tool
You can use this tool to get an estimate if you’re employed and paid the same amount monthly, by your employer through the PAYE system.
HMRC online guidance warns that you will not get a useful result if you have different working arrangements for the period from July 6, 2021 to July 5, 2023, including if you’re not liable to pay the main rate of UK Class 1 National Insurance contributions at the standard rate on your earnings or profits.
This includes if :
- you’re over State Pension age
- you’re self-employed
- you pay the reduced rate
- you work outside the UK
This also includes if you have either more than one employer or you’re not evenly paid all of your earnings in a monthly payment (or both)for example:
- you get a bonus
- you’re paid commission
- you’re paid weekly
- there is, or will be, a change in your circumstances which affects the amount of UK National Insurance contributions you pay in the period such as getting a pay rise or changing employers
Get an estimate of your National Insurance Contributions using the tool on the GOV.UK website, here.
To keep up to date with the most-read money stories, subscribe to our newsletter which goes out three times each week - sign up here .
