During the 2022 Spring Statement in March, Chancellor Rishi Sunak announced changes to National Insurance that will come into effect on 6th July this year. National Insurance (NI) is a tax that contributes towards your benefits and pensions, and the amount you pay depends on how much you earn. What are these changes and how will they affect you? We run through the answers in this guide.
What are the changes to National Insurance from July 2022?
The income threshold that determines when people start paying National Insurance is increasing. For “Class 1” national insurance, the tax paid by employees, which is the most common type, is set to increase its income threshold from £9,568 a year to £12,570. This is an increase of just over £3,000.
The threshold is also increasing for the self-employed, or Class 2 insurance. Class 2 is now payable when profits top £6,725 a year, up from £6,515.
This all comes on the back of the National Insurance increase of 1.25 per cent in April (up from 12% to 13.25%.), which has reduced employees' paychecks and means employers have to pay 15.05 per cent national insurance payments for staff earning over £9,100 a year.
What do the NIC changes mean for you?
As of July 6th, if you earn less than £12,570 a year, you will not have to pay National Insurance. This means that you will earn more, as less of your paycheck is deducted as tax.
Even if you earn more than this, the first £12,570 of your earnings will not be taxed, again decreasing the amount of tax you have to pay.
The impacts of this, combined with the 1.25 per cent increase in National Insurance means that, in the 12 months following April 2022, anybody earning less than approximately £35,000 will pay less National Insurance than last year. In the same vein, anybody earning more than that will pay more NI. All of this means that around 70 per cent of workers will have their tax cut by more than the 1.25% increase.
The National Insurance rate increase was put in place so that the government could raise £12 billion a year to fund the NHS and social care system, but increasing the point at which NI is paid will cost more than half of this. This means that although the government says they intend to drop the rate by next year, this is unlikely as they need to subsidise this higher threshold.
If you run a business in Melton Mowbray and need help deciphering how the July 2022 NIC changes will affect you, contact SRB Associates today on 07766 010 393 and speak to one of our accountants.