National Insurance tax rise explained – and how much more you’ll pay from April

From April 2022, workers will be charged a higher rate of National Insurance at 1.25%. This will then turn into a health and social care levy from 2023, which all employees will contribute towards – including pensioners

The government has announced an extra tax to fund social care in England, and help the NHS recover after the pandemic
The government has announced an extra tax to fund social care in England

Employees, employers and the self-employed will all pay 1.25p more per pound in National Insurance (NI) from April 2022.

That’s under a new National Insurance tax increase that will come into force next year and eventually be renamed as a health and social care tax from 2023.

Under it, the average worker will pay an extra £255 a year in taxes. An employee on a £20,000 a year salary will pay an extra £130.

Higher earners on £50,000 per year would pay an extra £505.

People earning under £9,564 a year, or £797 a month, don’t have to pay National Insurance and won’t have to pay the new levy.

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All working adults, including those over the state pension age, will pay the 1.25% levy.

National Insurance was introduced in 1911 to provide a fund for workers who had lost their job or who needed medical treatment. It is now used to pay for the NHS, benefits and the state pension.

The money goes into a “ring-fenced” fund – which means that it has to be used for these purposes – but the government can borrow from the National Insurance fund to pay for other projects.

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From next April, the extra 1.25% will appear on payslips as a higher National Insurance tax, but in April 2023, NI will return to its current rate, and the extra tax will be collected as a new Health and Social Care tax.

The money, according to the government, will then go on social care only.

The rates of dividend tax will also increase by 1.25% to help fund the package.

Hargreaves Landsdown estimates the introduction of the levy will cost someone on a £30,000 salary an extra £255.40 per year – meaning they end up paying just over £2,700.

Someone on £40,000 will see their National Insurance contributions go up by £380 a year – to £4,032.

A worker on £50,000 will shell out an extra £505 a year – to £5,357.

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And someone earning £100,000 will pay an extra £1,130 a year – taking their total contribution to £7,010.

Boris Johnson insisted that “those who earn more pay more”, with the highest earning 14% of people paying around half the revenues.

Think tank the Resolution Foundation says a typical 25-year-old today will pay an extra £12,600 over their working lives from the increase in employee National Insurance alone, compared to nothing for a pensioner relying on pension income.

How much more tax will I pay?

  • If you earn £20,000, you’ll pay an extra £130
  • If you earn £30,000, you’ll pay an extra £255

  • If you earn £50,000, you’ll pay an extra £505

  • If you earn £80,000, you’ll pay an extra £880

  • If you earn £100,000, you’ll pay an extra £1,130

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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