Millions of adults in the UK will be hit with an increase to National Insurance soon.. Here’s everything you need to know about the increase to National Insurance
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All adults across the country can expect to pay more towards National Insurance as rates are expected to increase from April onwards.
The Government has warned that from spring 2022, National Insurance tax will increase by 10% per month, costing people hundreds more every year.
Both Boris Johnson and Rishi Sunak confirmed they are going ahead with the tax hike, which has been designed to tackle the NHS backlog caused by Covid and reform social care.
They wrote in The Sunday Times: “We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan.”
However, campaigners have warned the increase could push thousands more households into poverty as the UK faces an ever-growing cost of living crisis.
What is National Insurance?
National Insurance (NI) is the tax on earnings paid by employees, employers and the self-employed who pay it on their profits. The amount is used to pay for the NHS, state benefits and the state pension.
The level and type of National Insurance you pay depends on several factors:
- employment status
- level of earnings
- residence status
When do I pay National Insurance?
When and how you pay National Insurance depends on your type of employment. For example, if you get paid through a Pay As You Earn (PAYE) system then your NI contributions will automatically be deducted from your salary.
This will apply to each pay period, and depending on how often you get paid, it could be weekly, monthly, or a different time period. If you happen to earn extra in a month then you’ll pay extra NI, which you won’t be able to claim back later.
If you are self-employed then your National Insurance contributions will be calculated based on your Self Assessment tax return. It will then be paid at the same time as Income Tax.
How much will National Insurance increase?
The hike to National Insurance means that employees, employers and the self-employed will pay 1.25 pence more on the pound for contributions from April onwards.
An increase by 1.25% points might seem very negligible, but people’s contributions are actually increasing by more than 10%, according to James Andrews, senior personal finance editor at money.co.uk.
James said: “With the country in the midst of a cost of living crisis, the increased rate is set to affect millions of workers, particularly those on lower wages. For those people, the rise comes at a bad time, after research published last month showed that average personal debt in 2021 more than doubled in the space of just 12 months to a whopping £25,879 a person.”
Salary and new National Insurance contribution:
£20,000 – will pay an extra £130 a year (£10.80 per month)
£30,000 – will pay an extra £255 a year (£21.25 per month)
£50,000 – will pay an extra £505 a year (£45.80 per month)
£80,000 – will pay an extra £880 a year (£73.33 per month)
£100,000 – will pay an extra £1,130 a year (£94.16 per month)
However, those who earn less than £9,564 a year don’t have to pay National Insurance.
From next April, National Insurance will return to its current rate, with extra tax collected instead as a new Health and Social Care Levy.
This levy will also have to be paid by people over State Pension age who continue to work, however it won’t apply to people earning below £9,564 a year.
George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.