What you need to know about the National Insurance tax hike in 2022
UPDATE: The government has decided to reverse the NI increase that came into effect in July this year. As of November 6, 2022, the National Insurance rates will revert to the previous levels, while National Insurance thresholds remain the same.
To see the impact on NI contributions that employers pay for staff and that employees get deducted from their pay, use the below NI calculator.
Despite substantial opposition to the move, as well as a promise to the contrary in their 2019 manifesto, earlier this month the conservative government forged ahead with the national insurance tax hike. This article gives and overview how much contributions increase and when. Use our calculator to check how much NI you need to pay.
Download a free excel version of this NI calculator
When do NI contributions increase and by how much?
From the 6th April, National Insurance contributions (NICs) increased by 1.25 percentage points, meaning an extra 1.25p for every pound earned above the income threshold.
Employers with 100 employees on an average salary of £50,000 will see anincrease of their employer National Insurance bill of £48,000 per year.
The increase in national insurance contributions will last for this tax year (22/23), and then will continue as a ‘Health and Social Care Levy’ from April next year, with NICs returning to their previous rates. To avoid any unpleasant surprises, it’s worth informing yourself about what the NI hike involves and how it might impact take home pay and your business overall. In this article, you’ll find out why and when NI is increasing, and how much it will cost you.
Who pays National Insurance contributions and why?
Employees and self-employed people over the age of 16 pay national insurance contributions on income above a certain threshold. If you’re an employee, your employer will deduct your NI contributions from your wage before paying you. This will be reflected on your payslip. Employers also pay an additional employer National Insurance contribution on employee earnings to HMRC.
Individuals can also elect to pay national insurance to fill in or avoid gaps in their record, these are called ‘voluntary contributions’. National Insurance is UK wide, unlike income tax which varies in each nation of the United Kingdom. The reason you pay NI contributions is to qualify for a State Pension as well as certain benefits such as statutory sick pay, maternity allowance and bereavement support payments.
What are the different National Insurance classes?
National insurance classes are different types of national insurance contributions. The ‘class’ you pay is determined based on your current employment status and the amount you earn:
- Class 1 applies to employees that earn more than £190 a week.
- Class 1A or 1B applies to employers that pay these directly on employee benefits and expenses.
- Class 2 applies to self-employed people.
- Class 3 are voluntary contributions.
- Class 4 is for self-employed people that earn more than £9,881 or more a year.
When will national insurance increase?
From April 6 2022 until April 5, 2023, NI contributions will rise by 1.25%. This translates for most employees to a change from the previous rate of 12% to 13.25% on the majority of their earnings, the amount between the tax-free allowance (primary threshold) and upper earnings limit (UEL), and from 2.0% to 3.25% for income above the upper earnings limit. But not all employees are affected equally, depending on their National Insurance category.
The National Insurance contribution income threshold for employee NI contributions rose from £9,568 per annum to £9,880 in April, and will increase again to £12,570 in July, partly offsetting the increase in contribution rates for employees. The upper earnings limit will stay at £50,270.
Why is national insurance increasing?
The government has attributed the decision to raise national insurance contributions to rising pressure on the NHS as a result of the COVID-19 pandemic, as well as a need to support the social care system. It is projected that this increase will raise £10.9 billion in revenue.
What do I need to know about the National Insurance increase from April 2022?
The national insurance hike is the first of a two-stage plan. For this tax year 22/23, both employees and employers will see an increase in their contributions by 1.25% or an additional 1.25p for every pound earned. This increase applies to Class 1, 1A, 1B and Class 4 contributions.
What are the changes for employees?
It’s important to note that the threshold at which national insurance contributions become mandatory for employees will rise from 6 July 2022 to match the income tax threshold (otherwise known as ‘personal allowance’). This means you can earn up to £12,570 before you have to start paying NI. This measure is intended to ‘soften the blow’ of the NI increases, especially amongst rising living costs.
|Tax Year 2021/22||Tax Year 2022/23|
6 April to 5 July
|Tax Year 2022/23|
6 July 5 November
|Tax Year 2022/23 6 November to 5 April 2023|
|Income threshold (£)|
|Base rate||£9,564 -£50,268||£9,800 – £50,268||£12,570 – £50,268||£12,570 – £50,268|
|NI contribution rates|
What are the changes for employers?
The changes for employers are more straightforward for employers. The tax-free allowance (secondary threshold) increases like in most tax years by a small amount, from £8,844 to £9,100. What is different to most years is the increase in contribution rate from 13.8% to 15.05% for all income above the secondary threshold, which is far more impactful change.
|Tax Year 2021/22||Tax Year 2022/23|
6 April to 5 November
|Tax Year 2022/23|
from 6th November
|Annual income thresholds (£)|
|Tax-free (secondary threshold)||£8,844||£9,100||£9,100|
|Subject to NI (above ST)||> £8,844||> £9,100||> £9,100|
|NI contribution rates||>£50,268||>£50,268||>£50,268|
|NI rate (Class 1)||13.8%||15.05%||13.8%|
From next April, a separate tax – the so-called ‘Health & Social Care levy’ – will be introduced in place of the NI hike and National Insurance contributions will return to their previous rate. The Health and Social Care levy will appear as a separate tax item on payslips. And significantly, this levy will be payable by a wider group of people than National Insurance including state pensioners who are still in work.
What will the changes in National Insurance cost employees?
The increases in national insurance will mean many people see a decrease in their take home pay. It’s important, however, to understand that although mandatory contributions are rising, so too are the national insurance contribution income thresholds in July, partly softening the blow on take home salaries for employee, who see a large increase in their NI-free allowance. However, for employers the impact is far more harsh, as the income threshold increase is minor.
The three month lag between the NI hike and the threshold increase mean employees will see their take-home salary change twice in the next few months. However, on balance, the result is that anybody that earns below £34,000 this year will actually pay less national insurance than last year. According to the Government’s Spring Statement, this will help 30 million people in the U.K. with the cost of living. Anybody who earns above that threshold, however, will see an increase in their contributions.
Anybody that earns below £34,000 this year willactually pay less National Insurance than last year.
This is how much employee NI contributions will increase or decrease per annum for the following annual incomes:
What will the changes in National Insurance cost the employer?
Employer National Insurance increases will have a significant influence on outgoing expenses and your payroll. According to the Guardian, Britain’s employers will have to shoulder a £9bn tax rise.
The following table shows the impact on employers’ annual National Insurance bill based on the amount of employees in the company and their average annual income. For example, an employer with 50 employees on an average salary of £60,000 will see an increase of their employer NI bill of £30,000 per year.
|Avg Salary ->|
Though some employees may have taken the time to inform themselves of these changes, it’s good practice to tell employees about the national insurance increases and how they will impact their take-home pay from this month, so there are no unpleasant surprises and to avoid a wave of questions from surprised employees.
With a whole host of adversity facing businesses this year, you shouldn’t have to worry about manually overhauling your payment system. Modern payroll software should implement and reflect all relevant changes and increases automatically.
Use a Salary Sacrifice pension to reduce your NI bill
Workplace pensions are relevant for your National Insurance bill because contributions into certain types of workplace pensions reduce income that is considered NI taxable and therefore reduce NI contributions.
Employers with 100 employees can save over £40,000 per annum on National Insurance contributions as a result of Salary sacrifice.
Visit our previous blog How to Save on National Insurance with Salary Sacrifice & Pension Contributions post to learn how you can start saving today.
What can employers do to minimise overhead and distress to employees?
Modern employee platforms that include payroll can take of not only implementing the increase in NI rates and thresholds but also actively inform employees about upcoming changes and give employees insight into their payroll deductions directly in their employee portal, where they can also access payslips to inform themselves why their net salary changed, so they do not have to send a bunch of emails to admins.
With Zelt, employers can run payroll effortlessly, as it’s HMRC-approved and highly automated. Not only are the upcoming NI increases automatically implemented in Zelt’s payroll module but employees have real-time access to their payroll via their Zelt portal and are kept up to date with changes relevant to them.