National Insurance increased in April – but in July the threshold changed. Could this mean you save money?
In April, new rates of National Insurance rates came into play, as part of the Government’s changes to Health & Social Care budgeting. We explored this change in this blog last year, which essentially increased most people’s National Insurance costs by 1.25%.
But on 6 July, the thresholds for paying National Insurance increased – which is a game changer for a lot of people.
How will the changes affect me?
It all depends on how much you earn. People on lower incomes – around 30 million of us – will benefit, gaining a little more in their pay packet. Meanwhile those in higher income brackets will pay more in National Insurance.
Plus, 2.2 million people will no longer have to pay NI, as their salary will come under the threshold.
What are the new NI rules?
On 6 July the NI threshold – the minimum amount you need to earn to make contributions, became the same as the income tax threshold.
Now, you no longer pay National Insurance or income tax if you earn under £12,570 a year. That’s a fairly big jump up from the previous NI threshold of £9,880 which applied from April 2022.
The change was announced in March 2022 by the Chancellor of the Exchequer, as a response to the rapidly rising cost of living.
What if I earn more than the NI threshold?
You will still feel the benefit as you will pay less National Insurance overall, because a smaller proportion of your salary is over the threshold. It means you will pay less than you did before 6 July.
Around 30 million people are set to pay less National Insurance, with an average benefit of £330 per year. This applies for anyone earning up to £40,000 a year.
Those on higher salaries will pay more, however. Around a third of the UK’s working population will still pay more NI now than they did in March.
The table below sums up how much people in different income brackets will pay.
|NICs in 2021-22
Does this change again next year?
From April 2023, the 1.25% increase in NI will move into a new Health and Social Care Levy, at the same rate. It will be paid separately from National Insurance as a standalone tax.
As a result, NI rates will fall again – but you won’t see any difference in your pay because of the Levy.
There are also changes on the way for pensioners. People still working after the state pension age (currently age 66) don’t currently pay National Insurance. But from April 2023 the new levy will be deducted from the earnings of those still in employment.
What do the NI changes mean for my pension?
Your National Insurance record affects the level of state pension you are entitled to. But if you no longer earn enough to pay NI, you won’t necessarily miss out on state pension credits.
You will still gain qualifying years for the state scheme if your income is over the “lower earnings limit” with your employer, which is currently set at £123 a week or £6,396 a year.
If you’re self-employed, you will still gain National Insurance credits if your profits are above £6,725 for the 2022/23 tax year.
Need help with tax, pensions or other personal planning in the Lune Valley? Just get in touch, we will be pleased to help.