Along with the increases to the National Living Wage and the minimum wage, National Insurance is also increasing from April 2022. Here is what you need to know about the national insurance tax rise.

Who pays National Insurance?

● Employees pay National Insurance on their wages

● Employers also pay extra National Insurance contributions for staff

● The self-employed pay National Insurance on their profits

How much is National Insurance tax rising by?

Employees, employers and the self-employed who earn more than £9,880 (previously £9,568) a year will all pay 1.25p more in the pound for National Insurance (NI) from April 2022.

For employers and employees:

Employees’ National Insurance contributions will rise from 12% to 13.25%, while employers’ National Insurance contributions will rise from 13.8% to 15.05%.

For the self-employed paying Class 2 contributions:

Between 6 April and 5 July 2022, those earning between £6,725 and £9,880 won’t pay Class 2 contributions and from 6 July to the end of the tax year, those earning between £6,725 and £12,570 won’t pay Class 2 contributions.

However, if your earnings exceed £9,880 between 6 April and 5 July, or £12,570 from 6 July onwards, you’ll pay Class 2 contributions of £3.15 a week.

For the self-employed paying Class 4 contributions:

For the period of 6 April to 5 July 2022, Class 4 National Insurance contributions between £9,568-£50,270 are increasing from 9% to 10.5%, and profits above £50,270 will be taxed at 3.25%, up from 2%. From 6 July, the lower limit will rise to £12,570 for the rest of the tax year and you’ll still pay 3.25% on profits over £50,270.

In April 2023, National Insurance will return to its current rate, but the extra tax will still be collected as a new Health and Social Care Levy, which will also be paid by state pensioners (those over 66) still in work.

Changes to the National Insurance tax threshold

From July 2022, the threshold at which employees start paying will be increased to the same as the income tax threshold (also known as the personal allowance) of £12,570, meaning that over the course of the tax year, those earning less than £34,000 a year will actually pay less National Insurance than they did the previous year. However, those earning more than this will be paying more National Insurance over the course of the year than they did previously.

Exemptions to the National Insurance tax rise

There are certain employees for whom employers won’t have to pay the additional National Insurance contributions. These include the following types of employees who are earning under £50,270 a year:

● Employees under 21

● Apprentices under 25

● Armed forces veterans

● Employees in Freeports on less than £25,000 a year

What is the National Insurance tax increase being used for?

The tax increase is being implemented to help the NHS, health and social care recover from the COVID-19 pandemic.

The increase will initially be used to help ease pressure on the NHS, but then a proportion will be used for the social care system. This funding is focused on health and social care in England, but the tax is also expected to raise an additional £2.2 billion for services in the rest of the UK.

While the National Insurance increase is going to a good cause, it is coming at a time when the cost of food, fuel, and energy bills are all on the rise. Local authorities are also allowed to raise council tax by up to 5%.

The impact of the National Insurance tax rise is sure to be felt by many as it is coming at a time when the cost of living is also on the rise. However, with the threshold for National Insurance contributions being raised in July, many employees will pay less National Insurance over the year than they did previously. 

If you have any questions about how the National Insurance rise will affect you or your business, you are welcome to get in touch with us.