Along with spiralling inflation rates, soaring energy bills, and fuel prices reaching record highs, the National Insurance (NI) tax rate also saw a 1.25 percent increase at the start of April, adding further financial strain to workers across the UK. This tax rise was introduced by the Government to build up a ‘levy’ to help support the UK’s public healthcare sector.
The NI increase should collect around £12 billion from workers, which will then be invested in the NHS to ease pressure. However, this additional tax contribution comes at a particularly challenging time for Britons.
Elliott Smith, co-founder of Love Your Employees, the UK’s first employee benefits and well-being marketplace said: “The National Insurance increase arrives at a financially difficult moment for households.”
“Alongside the inflation and the rising costs of utility bills, the new tax will impact even further the pockets of millions of workers across the UK.”
So how exactly might the NI increase affect you as an employee and will this impact your earnings?
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People taking home an annual wage over £50,270 will have to pay 3.5 percent over this threshold, rather than the previous two percent.
Currently, the new NI rate affects anyone with a salary of at least £9,880, but this is due to change in July.
From July, the threshold will be raised by £3,000, and only employees earning a minimum of £12,570 per year will be taxed.
This also means the first £12,570 people earn, as of July 2022, will be free of National Insurance.
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How will this impact taxpayers’ earnings over the next year?
Combining the aforementioned measures, workers will experience a considerable change in their expenses.
Employees earning less than £34,000 per year will actually pay less National Insurance in the year to come than they did prior to April 2022.
Love Your Employees provided the example of a worker earning a £20,000 annual salary will save £178 on their National Insurance between April 2022 and April 2023. If an employee earns £30,000 per year, they will pay £53 less than they did the last year.
However, people with larger salaries (over £34,000 per year) will end up paying more than they used to. For example, somebody earning a £50,000 yearly wage will deposit an extra £197, whereas those on a £100,000 annual pay will see their National Insurance increase by £822.
Mr Smith said in this scenario, salary sacrifice may aid workers who are paying the higher NI rate.
He said: “Salary sacrifice gives employees the chance to contribute to their pension from their gross pay.”
“This means that you are being taxed at a lower level of salary. Hence, salary sacrifice can mitigate costs for both businesses and workers.
Mr Smith continued: “Not only will companies decrease their National Insurance contributions, but they could also increase how much their employees take home every month.
“If you need support, Love Your Employees is happy to help businesses and their people tackle the increasingly rising costs of living.”
From April 2023, however, National Insurance contributions will return to their previous rates. This additional money accumulated will be collected as a separate tax, termed the Health and Social Care Levy, to help fund the country’s health and social care.
This levy – unlike NI – will also be paid by working state pensioners.
What will the increase in NI go towards?
The driving force behind the change is ultimately to help support the UK’s public healthcare sector.
The NI increase should collect around £12 billion from workers, and this will be invested to ease pressure on the NHS.
A percentage of this money will be devolved to the UK’s social care system, with pressing priority said to help older people who require care needs.
Love Your Employees said: “Depending on the value of people’s assets, the Government will spend additional money to cover general care costs.
“Anyone in England with a home, savings, and investments that are worth less than £20,000 will have their care funded completely by the state.
Those with assets valued between £20,000 and £100,000 will also receive state support but are expected to contribute towards their own costs too.
From October 2023, the Government will introduce an £86,000 care cap. This means that, in England, there will only be a certain amount of money you will need to spend to look after your personal care over the years.
As for Scotland, Wales, and Northern Ireland, they are expected to receive £2.2 billion to spend on their own social and health care, of which they will decide how to distribute the money autonomously.