National Insurance Increases Today Amid Cost of Living Crisis

National Insurance Increases Today Amid Cost of Living Crisis

Daniel Hall 06/04/2022
National Insurance Increases Today Amid Cost of Living Crisis

National Insurance (NI) has increased for millions of workers around the United Kingdom as the cost of living crisis surges on.

The burden of tax falling on workers and employers has increased as a hotly-debated rise in National Insurance payments takes effect.

Boris Johnson broke his manifesto promise in September when he pressed ahead with a plan to increase taxes in the form of the 1.25 percentage point hike, in order to fix what he called a "broken social care system," and to help ease the burden on the NHS as it recovers from a pandemic.

What is National Insurance?

St Jude Hospital

National Insurance is essentially a tax that counts towards your entitlement to the NHS, state benefits and pension.

It was introduced in 1911 to be a fund for people struggling with unemployment or sickness.

Employees pay National Insurance on their earnings, employers pay extra contributions for staff, and self-employed people pay it on their profits.

Differences Between Income Tax and National Insurance

Unlike income tax, the percentage of National Insurance contribution you pay does not increase much, the more you earn.

As long as you earn more than £190 a week or around £9,880 per year, you pay National Insurance, whereas income tax does not kick in until after your wage rises above £12,570 per year.

You stop paying NI payments after you hit pension age - although the government's new policy has changed this slightly.

To qualify for a state pension and some benefits you must have paid National Insurance for 35 years - if you've faced a period of unemployment you can voluntarily contribute to catch up.

Income tax thresholds rise as income rises, National Insurance is a flat amount up until you earn £50,000 and only increases slightly after that.

It is UK-wide, whereas the four nations of the UK set their own rates of income tax.

What is Changing From Today?

From Wednesday, National Insurance contributions will increase by 1.25 percentage points, so employees, employers and self-employed people will all pay 1.25p per pound on anything earned above the tax-free threshold.

However, in April 2023 onwards, the National Insurance rate will decrease back to the 2021-22 level, with a new 1.25% health and social care levy legally introduced.

The UK Government predicts the tax rise will raise £39 billion over the next three years to help reduce the Covid-induced NHS backlog and later reform adult social care for the long-term.

How Much Will The New National Insurance Cost Workers?

Will Workers Disperse from Cities

Employees pay National Insurance on their wages, employers pay extra contributions for staff, and the self-employed pay it on their profits.

Instead of paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that, employees will now pay 13.25% and 3.25% respectively. The self-employed will see equivalent rates go up from 9% and 2% to 10.25% and 3.25%.

The tax will be progressive, meaning those who earn more will pay more.

For example, a basic rate taxpayer earning £24,100 will contribute £180 a year and a higher rate taxpayer earning £67,100 will contribute £715 a year.

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Daniel Hall

Business Expert

Daniel Hall is an experienced digital marketer, author and world traveller. He spends a lot of his free time flipping through books and learning about a plethora of topics.

 
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