From 6th April 2022, the controversial rise in National Insurance contributions (NICs) came into effect. Going forward, employers and employees will have to pay an extra 1.25% towards National Insurance. This will affect everyone under the state pension age or those who earn more than £9,880 annually.
In April 2023, the National Insurance rise will be separated and taken as an additional tax called the Health and Social Care Levy which will go directly to the NHS in order to aid the recovery since Covid.
Increases in rates
Instead of paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that, employees will now pay 13.25% and 3.25% respectively. The self-employed will see equivalent rates go up from 9% and 2% to 10.25% and 3.25%.
The government announced the rise in NIC in September 2021, stating that the measure will bring in an extra £39bn over the next three years to tackle the backlog caused by Covid and help to reform adult social care.
Furthermore, the dividend rate has risen by 1.25% across the board from 6th April. The dividend ordinary rate will be set at 8.75%, the upper rate will be 33.75% and the additional rate will be 39.35%. The dividend trust rate will also increase to 39.35% to remain in line with the dividend additional rate.
Chancellor Rishi Sunak defended the decision to increase National Insurance contributions and issued the following statement regarding the rise:
‘This government will not shy away from the difficult decisions we need to take to fix our social care system and slash NHS waiting times. The Health and Social Care Levy will fund a third more elective care, over 17m extra diagnostic tests and cap the cost of care so people no longer live in fear of losing everything to pay for care. The British people deserve the best health care in the world and delivering that is our top priority.’
The rise in National Insurance has been met with backlash from both MPs and the public. The rise has come at a time when the inflation rate has increased to 7% and Ofgem’s energy price cap raised by £700 to £1,900. Many have expressed concerns that the NIC increase will make lower earners even worse off.
In an attempt to mitigate this, the Chancellor confirmed in the Spring Statement that the threshold for paying National Insurance will rise from 6th July 2022, meaning that National Insurance will not be paid until a person earns more than £12,570 a year. This will bring it in line with the personal tax allowance threshold.
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