29 Mar National Insurance increases from April 2022
In September 2021, Boris Johnston announced that as of April 2022, National Insurance contribution (NICs) rates will increase by 1.25%. From April 2023, the 1.25% increase will be separated and known as the Health and Social Care levy, which will be visible on employees’ payslips. Dividend tax rates will also be increased by the same amount from April 2022. This move by the government is to bring in extra funding for the NHS and help with social care costs.
Following the Spring Budget announcement in March 2022, from 6 July 2022, there will be changes to the 0% rate National Insurance threshold in response to the rising cost of living. As a result, the threshold will rise to £12,570.
What is National Insurance?
National Insurance Contributions are a tax on your earnings, paid by both employees and employers to help build your entitlement to benefits such as the state pension, statutory maternity leave, the NHS, unemployment benefits and sickness and disability allowance. Currently, you start paying national insurance when you earn over £9,568 a year and stop paying it when you reach State Pension age.
Who will be affected by the change in National Insurance Contribution rates?
The increase in NICs is for employees paying class 1 contributions (employees earning more than £184 per week and under state pension age) and self-employed workers paying class 4 contributions (self-employed people making annual profits of £9,569 or more). Employers will also be required to pay an extra 1.25% in Employer NIC. These rate increases will come into effect in April 2022. Those currently paying class 2 and class 3 National Insurance Contributions will be unaffected by the rate changes.
How will the change affect me as an individual and my employees?
For employees paying Class 1 contributions, the National Insurance Contributions based on their annual income is:
| 2021 -2022 | 6 April – 5 July 2022 | 6 July 2022 – 5 April 2023 | |||
| Income | NIC | Income | NIC | Income | NIC |
| Less than £9,568 | 0% | Less than £9,880 | 0% | Less than £12,570 | 0% |
| £9,568 – £50,270 | 12% | £9,880 to £50,270 | 13.25% | £12,570 to £50,270 | 13.25% |
| More than £50,270 | 2% | More than £50,270 | 3.25% | More than £50,270 | 3.25% |
There will be a slight change in the 0% rate income threshold with it increasing from less than £9,568 to less than £9,880 from 6 April to 5 July in 2022 and will increase further to £12,570 from 6 July 2022 to 5 April 2023. The Chancellor says this threshold increase is a tax cut that will save the typical employee over £330 a year.
Individuals who are still in employment after reaching state retirement age will be subject to the 1.25% charge for earnings over £12,570 from April 2023, when the extra charge will be separated out into the Health and Social Care Levy.
For those self-employed making class 4 National Insurance Contributions, the rate will increase from 9% to 10.25%, with income of more than £50,270 being charged 3.25%, rising from 2%.
The increase will affect individuals who receive dividend payments from a company. Dividends taxed in the basic rate band will increase from 7.5% to 8.75%, with the higher rate band rising from 32.5% to 33.75%. In addition, the top band will have charges increased from 38.1% to 39.35%.
Calculate your national insurance contributions here.
How will the increases affect my business?
If you employ workers, the rate of National Insurance you pay as an employer will rise from 13.8% to 15.05% for all income per employee above £9,100.00 per annum. The Employer’s Allowance, which covers the first £5,000 of many businesses’ National Insurance costs, is still available and will be accessible when the Health and Social Care Levy is separated in 2023. The Class 1A rate, which employers pay on company cars and private medical insurance, known as fringe benefits, will rise from 13.8% to 15.05%, with Class 1B rates increasing in the same way.
It is important to factor these changes into your budget and plan effectively for the increases. Our team of tax experts at Douglas Home and Co can work with you to understand National Insurance’s changes and help you plan ahead and prepare effectively.