People’s paypackets are already being emptied faster than ever with the rising cost of living, but they will have even less to spend when a tax hike is due to come into force next month. National Insurance is planned to rise by 1.25 percentage points in April to tackle the Covid-induced NHS backlog and reform social care.
Employees, employers and the self-employed will all pay 1.25p more per pound in National Insurance (NI) from April 2022. The increase will be rebranded as the Health and Social Care Levy from 2023.
The increase, coming on top of rising food and petrol prices, not to mention a steep rise in energy costs, will see the average worker will pay an extra £255 a year in taxes. An employee on a £20,000 a year salary will pay an extra £89, MirrorOnline reports.
Higher earners on £50,000 per year would pay an extra £464. However, people earning under £9,880 a year, or £823 a month, don’t have to pay National Insurance and won’t have to contribute.
The Government has been under pressure to axe the increase, including by some of its own backbenchers. But others have said that the money would have to be found elsewhere to help the NHS and social care if the hike was stopped and there is no indication the rise won’t go ahead.
People pay National Insurance to qualify for certain benefits and the state pension. You pay it if you are aged over 16, earn above £184 a week, are self-employed and make a profit of £6,515 a year or more.
You pay it until you reach the State Pension Age. Below, we look at some questions you may have about the rise.
When did National Insurance start?
National Insurance was introduced in 1911 to provide a fund for workers who had lost their job or who needed medical treatment. It is now used to pay for the NHS, benefits and the state pension.
The money goes into a “ring-fenced” fund – which means that it has to be used for these purposes. But the government can borrow from the National Insurance fund to pay for other projects.
When will I notice the extra tax?
From April, the extra 1.25 per cent will appear on payslips as a higher National Insurance tax, but in April 2023, NI will return to its current rate, and the extra tax will be collected as a new Health and Social Care tax.
The money, according to the government, will then go on social care only. The rates of dividend tax will also increase by 1.25 per cent to help fund the package.
How much will I pay?
If you earn £20,000, you’ll pay an extra £89
If you earn £30,000, you’ll pay an extra £214
If you earn £50,000, you’ll pay an extra £464
If you earn £80,000, you’ll pay an extra £839
If you earn £100,000, you’ll pay an extra £1,089
Think tank the Resolution Foundation says a typical 25-year-old today will pay an extra £12,600 over their working lives from the increase in employee National Insurance alone, compared to nothing for a pensioner relying on pension income.
A spokesperson for Income Tax Calculator UK said: “The increase in National Insurance will have a huge effect on workers’ earnings in 2022, especially given soaring energy bills and the fact that inflation is at its highest point in 30 years.
“This data gives us a compelling insight into the fact that lower and average earners will be significantly more squeezed by the National Insurance hike than those at the very top.
“People earning some of the highest salaries in the country, for example, workers on £100,000 a year are set to pay the same percentage of their salary to NI as a person on £20,000 in 2022, despite earning five times as much, while those earning the average wage of £30,000 will see as much as 9 percent of their salary swallowed by NI.”