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What you need to know about the National Insurance tax hike in 2022






















UPDATE: The government has decided to reverse the NI increase that came into effect in July this year. As of November 6, 2022, the National Insurance rates will revert to the previous levels, while National Insurance thresholds remain the same.


To see the impact on NI contributions that employers pay for staff and that employees get deducted from their pay, use the below NI calculator.


Despite substantial opposition to the move, as well as a promise to the contrary in their 2019 manifesto, earlier this month the conservative government forged ahead with the national insurance tax hike. This article gives and overview how much contributions increase and when. Use our calculator to check how much NI you need to pay.


 


Download a free excel version of this NI calculator






 

When do NI contributions increase and by how much?

From the 6th April, National Insurance contributions (NICs) increased by 1.25 percentage points, meaning an extra 1.25p for every pound earned above the income threshold.

 

Employers with 100 employees on an average salary of £50,000 will see an

increase of their employer National Insurance bill of £48,000 per year.

 

The increase in national insurance contributions will last for this tax year (22/23), and then will continue as a ‘Health and Social Care Levy’ from April next year, with NICs returning to their previous rates. To avoid any unpleasant surprises, it’s worth informing yourself about what the NI hike involves and how it might impact take home pay and your business overall. In this article, you’ll find out why and when NI is increasing, and how much it will cost you.



Who pays National Insurance contributions and why?


Employees and self-employed people over the age of 16 pay national insurance contributions on income above a certain threshold. If you’re an employee, your employer will deduct your NI contributions from your wage before paying you. This will be reflected on your payslip. Employers also pay an additional employer National Insurance contribution on employee earnings to HMRC.


Individuals can also elect to pay national insurance to fill in or avoid gaps in their record, these are called ‘voluntary contributions’. National Insurance is U.K. wide, unlike income tax which varies in each nation of the United Kingdom.


The reason you pay NI contributions is to qualify for a State Pension as well as certain benefits such as statutory sick pay, maternity allowance and bereavement support payments.


What are the different National Insurance classes?


National insurance classes are different types of national insurance contributions. The ‘class’ you pay is determined based on your current employment status and the amount you earn:

  • Class 1 applies to employees that earn more than £190 a week.

  • Class 1A or 1B applies to employers that pay these directly on employee benefits and expenses.

  • Class 2 applies to self-employed people.

  • Class 3 are voluntary contributions.

  • Class 4 is for self-employed people that earn more than £9,881 or more a year.


When will national insurance increase?


From April 6 2022 until April 5, 2023, NI contributions will rise by 1.25%. This translates for most employees to a change from the previous rate of 12% to 13.25% on the majority of their earnings, the amount between the tax-free allowance (primary threshold) and upper earnings limit (UEL), and from 2.0% to 3.25% for income above the upper earnings limit. But not all employees are affected equally, depending on their National Insurance category.


The National Insurance contribution income threshold for employee NI contributions rose from £9,568 per annum to £9,880 in April, and will increase again to £12,570 in July, partly offsetting the increase in contribution rates for employees. The upper earnings limit will stay at £50,270.


Why is national insurance increasing?


The government has attributed the decision to raise national insurance contributions to rising pressure on the NHS as a result of the COVID-19 pandemic, as well as a need to support the social care system. It is projected that this increase will raise £10.9 billion in revenue.



What do I need to know about the National Insurance increase from April 2022?


The national insurance hike is the first of a two-stage plan. For this tax year 22/23, both employees and employers will see an increase in their contributions by 1.25% or an additional 1.25p for every pound earned. This increase applies to Class 1, 1A, 1B and Class 4 contributions.


What are the changes for employees?


It’s important to note that the threshold at which national insurance contributions become mandatory for employees will rise from 6 July 2022 to match the income tax threshold (otherwise known as ‘personal allowance’). This means you can earn up to £12,570 before you have to start paying NI. This measure is intended to ‘soften the blow’ of the NI increases, especially amongst rising living costs.

Tax Year 2021/22

Tax Year 2022/23

6 April to 5 July

Tax Year 2022/23

6 July 5 November

Tax Year 2022/23 6 November to 5 April 2023

Income threshold (£)

Tax-free

9,564

9,880

12,570

12,570

Base rate

​9,564-50,268

​9,880-50,268

​12,570-50,268

​12,570-50,268

Upper rate

> 50,268

> 50,268

> 50,268

> 50,268

NI contribution rates

Tax-free

0%

0%

0%

0%

Base rate

12%

13.25%