National Insurance increase: How will it affect me?


National Insurance increase: How will it affect me?

After weeks of rumours and an internal battle between the No.10 & No. 11, the government has now announced its plan to raise national insurance rates by 1.25% to help pay for social care.

As if there weren’t enough challenges for UK small businesses and employee’s post-pandemic, the changes are due to come into effect from the 6th of April 2022 (at the start of the new tax year)

Most of us are familiar with the National Insurance tax that is paid by both the employers and employees. It is automatically deducted from workers’ pay packets via the pay as you earn (PAYE) tax code and goes straight to HM Revenues and Customs (HMRC). Employers and employees currently pay Class 1 National Insurance, which is based on how much an employee earns. The rate is 13.8% for employers, while employees pay 12% of their earnings, up to earnings of £50,270 a year. Anything earned over this amount is taxed at 2%.

Anyone earning up to £9,564 is not subject to the National Insurance Contribution increase.

This table shows the additional 1.25% NIC payable each by employers and employees on various salaries:

Annual Income Per Month Per Year
 £                           20,000.00  £                  10.87  £               130
 £                           30,000.00  £                  21.28  £               255
 £                           40,000.00  £                  31.70  £               380
 £                           50,000.00  £                  42.12  £               505
 £                         100,000.00  £                  94.20  £            1,130

(please note – figures correct as at 8 Sept 21, and are subject to change. Please see latest post for updates)

As with Limited Companies, the government also announced the increase for self-employed. Self-employed workers pay either Class 2 or Class 4 for National Insurance, which is less than PAYE, and is taxed on income after business expenses. If you’re a sole trader then, under the new rules, you’ll still lose 1.25 pence for every £1 earned.

Existing reliefs and allowances from employer’s secondary class 1 NIC will apply to the levy, including the £4,000 employment allowance.

Health and Social Care Levy

From April 2023, once HMRC has been able to amend its system, the National Insurance Contributions will go back to current levels and a separate line item called ‘Health & Social Care Levy’ will be introduced on the payslips.

The 1.25% increase will apply to employed or self-employed pensioners from April 2023, and will be called the Health and Social Care Levy.

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