National Insurance Thresholds Lowered

There’s a strong chance you’re now required to pay less National Insurance (NI). This is because the threshold for what you need to earn before you pay NI increased last month. Let us explain.

What is NI?

NI is a mandatory contribution for anyone between the ages of 16 and the state retirement age who is earning over £823 per month (£9,880 per year) as an employee or more than £6,725 in profit when self-employed.

There are four main types of national insurance:

• Class 1: paid by employees and employers
• Class 2: a flat rate for the self-employed
• Class 3: Voluntary contributions for those who want to avoid gaps in their NI record to ensure they qualify for benefits such as the state pension
• Class 4: paid by the self-employed based on profits above a given threshold

Didn’t NI increase earlier this year?

Yes, it did. NI increased by 1.25% from April 6th 2022 as part of the Government’s plans to increase funding for the NHS and similar bodies. However, plans have now changed…

What’s changing?

From 6 July 2022, the threshold which triggers a need to pay NI, became the same as the income tax threshold of £12,570. This is an increase on the £9,880 threshold which came into force in April 2022 (an increase which the Government introduced to help pay for the NHS), and the £9,588 threshold which was in place in the 2021/22 tax year.

So, unless you’re a higher earner, you can now earn more before you have to pay NI, meaning you’ll get to enjoy more take-home pay.

The table below illustrates the amount of NI you have to pay at different income levels.

(source: https://www.thetimes.co.uk/money-mentor/article/national-insurance-increase-2022)

Is it all good news?

Whilst the changes will be welcome news to many people, any excitement should be tempered against the prospect of a new tax!

As mentioned, NI increased in April 2022 to help pay for the NHS and other benefits. However, from April 2023, it’s planned that this will be replaced by a new tax of 1.25% called the Health and Social Care Levy which will be paid separate to NI contributions to help fund the NHS and associated services.

Find out more

If you would like to discuss any aspect of the NI changes or find out how you will be affected, please get in touch.