There’s both a tax hike and a tax cut for National Insurance this year.
It’s a confusing year for working out your take-home pay with most workers paying more National Insurance for the next few months but less from July onwards. Here’s how you can work out what you’ll have on payday.
What is National Insurance?
National Insurance Contributions (often called NIC) are paid by both employees and the self-employed who earn over a certain threshold. There are a few different types of National Insurance rates, but most of us don’t need to worry about them as we’ll pay it through payroll.
Though it’s not called a tax, it absolutely is. The money is largely used to help fund a huge variety of state benefits including the state pension, job seekers allowance, maternity leave and statutory sick pay. The April 2022 increase is specifically to help fund social care, and from 2023 will be a separate tax.
When you pay NICs you’ll also be building up National Insurance credits. This is really important as you’ll need these to receive the above and some other benefits. Each year you pay them counts as a qualifying year, and for the State Pension you need 35 of these.
But even if you’re not earning enough to pay National Insurance, you might still be getting qualifying years via things like Universal Credit and Child Benefit. There’s also the option to make voluntary contributions to ensure you reach the 35 years.
Employers also pay NICs but I won’t get into those here as the focus is on the difference it makes to our income.
How much National Insurance will I pay in April, May and June?
First up, let’s look at the change that’s already happend. You’ll find in your April payslip that the NIC element has increased, with 1.25 percentage points added.
The rate you pay will depend on how much you earn (assuming you’re employed rather than self-employed):
- Earnings over £9,880 and less than £50,270: Up from 12% to 13.25%
- Earnings over £50,270: Up from 2% to 3.25%
When it’s labelled as a 1.25% increase, it doesn’t sound like much, but that’s in percentage points. It has a bigger impact that you’d think.
As you can see from the examples below, it could in reality be 10% more extra compared to what you currently pay (for basic rate taxpayers), and even more for higher earners.
Here’s an idea of what you’ll be paying each month compared to last year (figures are all approximate and rounded):
|Annual salary||Monthly salary||NICs in 2021/22 (per month)||April / May / June NICs (per month)||Difference in post deduction monthly pay (approx)|
So everyone will be be paying more NIC each month. But you can’t multiply that number by 12 to see the annual total – because there’s another change coming in July.
How much National Insurance will I pay from July?
In July the change is on the amount you earn when you start paying National Insurance. The £9,880 threshold will increase to £12,570 – the same level when Income Tax starts.
This table shows the difference in take-home pay from July onwards.
|Annual salary||NICs in 2021/22 (per month)||July onwards NICs (per month)||Difference in post deduction monthly pay (approx)|
So a fair few people will actually pay less NIC each month than they were last year – but higher earners will still be paying more thanks to the April increase (albeit less than they will be in April, May and June).
Andy’s Top Tip
If you want to see exactly what your take-home pay is then check out the salary calculator. You can also add in extras like student loans and pensions, or see how a pay increase (or cut) changes things.
What does that mean for the whole year?
With the two changes, it’s a little confusing to then work out what it means for the whole of this financial year.
Broadly the average threshold for the year works out as £11,908 – so if you earn this or less you won’t pay National Insurance (though I doubt you’ll get a refund on the April to June payments).
Or if you earn around £35,000 (or less) you’ll be paying less National Insurance this year compared to last. Above this and your bill will go up.
This table shows (an approximate) total change to your NICs for this financial year (April to March) versus 2021/22, and then also for the following year (also versus last year) when it’ll just be the July system in place for the whole 12 months.
|Annual salary||Annual difference in 2022/23||Annual difference in 2023/24|