Changes to national insurance contributions from 6 July 2022

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Last September, then-Prime Minister Boris Johnson’s welfare plan was announced. Part of the plan proposed that Class 1 National Insurance contributions paid by employees would increase by 1.25%, from 12% to 13.25%, to fund the welfare system in England in a bid to put an end to the “unpredictable and catastrophic costs” that many face.

The rationale was to implement a social care scheme to fund the fight against the NHS backlog which the Prime Minister described as “the biggest catch-up scheme” in NHS history. The increase in National Insurance contributions which came into effect from April 2022 is expected to bring in around £12 billion, some of which will be allocated to other countries in the UK. National Insurance is a UK-wide tax, reserved for Westminster, which means it is not a devolved tax. Therefore, any contribution from increased revenue to the devolved administrations of Scotland, Wales and Northern Ireland must be used to fund social care costs in those countries and cannot be used for other purposes. other purposes.

An increase in the primary threshold for national insurance contributions

In the Spring Statement of March 2022, then-Chancellor of the Exchequer Rishi Sunak announced that from 6 July 2022 there would be an increase in the primary threshold, the level at which an employee becomes subject the payment of class 1 national insurance contributions, as part of government measures to help reduce the cost of living. The increase has been aligned with the UK Personal Allowance, so it has risen from the initial primary threshold of £9,880 a year to £12,570.

Rishi Sunak said “This will help almost 30million workers, with the typical employee benefiting from a tax cut worth over £330 in the year from July.“It is also estimated that as a result of this change, 2.2 million people will avoid paying National Insurance. This would apply to anyone earning less than £12,570, and as this is also the abatement current staff in the UK for income tax, those earning less than £12,570 would also not pay income tax.

National insurance and state pension

It should be noted that national insurance contributions are required to access a state pension and that for some employees the elimination of the need to pay national insurance contributions due to the increase of the primary threshold will result in gaps in their national insurance record. However, these gaps can be bridged by making Class 3 Voluntary Contributions, currently £15.85 per week or by qualifying for National Insurance credits.

National insurance saves or pays more?

For those earning up to around £40,000, there is still potential National Insurance savings thanks to the change implemented on July 6, 2022, but higher income earners will continue to pay more under insurance national.

Other National Insurance and Dividend Tax Changes

Also as part of the new health and social care tax, changes have been implemented for the other national insurance categories that affect employers and the self-employed. In addition, dividend tax rates have also been increased by 1.25%, primarily to align owner-managed businesses that remunerate owners through dividends.

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