Prime Minister Boris Johnson and Chancellor Rishi Sunak appear to be proceeding with a planned £12 billion National Insurance (NI) increase this spring.
There have been calls – including from some Conservative MPs – to reconsider the planned NI hike, with millions of people across Britain facing a cost of living crisis. Rising energy bills and inflation are putting many households’ finances under increasing pressure.
However, Sunak and Johnson – in a joint article for the Sunday Times – say the rise is necessary to clear the post-coronavirus NHS backlog. Here’s what you need to know about the NI hike.
READ MORE: Who pays National Insurance and what does it pay for?
When does National Insurance increase?
National Insurance will go up in April for a year. The government says the £12 billion levy will provide the NHS and social care – both badly hit by the pandemic – with a financial boost.
However, there are growing calls for the rise to be scrapped, amid concerns about the impact of rising inflation and energy bills on the living standards of working people.
The Conservative Party specifically said in its 2019 manifesto that it would not increase National Insurance if it was elected, though government ministers point out that circumstances have changed since due to the pandemic.
How much is National Insurance going up by?
National Insurance is set to increase by 1.25% in the 2022-23 financial year for employees, employers and the self-employed.
The government says it needs to raise extra funds to help the health and social care systems recover after the worst of the coronavirus pandemic.
How much more National Insurance will I pay?
From April 2022 to April 2023, employees, self-employed workers and employers will all pay an extra 1.25p in each pound for National Insurance.
How much extra this amount to will depend on the amount of money you earn. A worker earning £20,000 a year, for example, will pay an extra £130 in National Insurance over the year.
Workers on £30,000 will pay another £285, those on £40,000 will pay an extra £380, those on £50,000 will pay an additional £505 and those on £80,000 or more will pay another £880.
According to Gov.UK, National Insurance contributions will return to their 2021-22 level after April 2023, when they will be replaced by a new Health and Social Care Levy.
What is National Insurance?
National Insurance is a form of taxation on earnings and self-employed profits. Its proceeds go towards social security, so it is integral to the British welfare system.
Your National Insurance payments entitle you to a range of state benefits, including the state pension. If you don’t pay the minimum amount of contributions, you may be denied benefits.
To obtain those benefits, you’ll need a National Insurance number. A National Insurance number is issued to every British citizen just before their 16th birthday.
Who pays National Insurance?
National Insurance is paid by employees, self-employed workers and by employers.
If you’re aged 16 or over and you earn more than £184 a week as an employee, you will pay mandatory National Insurance.
Employees who earn between £120 and £184 per week have their National Insurance record protected, as their contributions are treated as if they’ve been paid.
Likewise, if you’re self-employed and make a profit of £6,515 or more per year, you will also have to pay mandatory National Insurance.
You may also be able to make voluntary NI payments to avoid gaps in your National Insurance contributions.
Do retirees pay National Insurance?
Pensioners do not pay National Insurance. Once you reach the state pension age, you are no longer liable for NI contributions.
Therefore, people who are above state pension age will not be affected by the NI hike in 2022-23. However, they will be liable for the Health and Social Care Levy from April 2023.
What does National Insurance pay for?
National Insurance is used to pay for the NHS as well as state benefits, including the state pension. It is a key lynchpin and funding mechanism of the welfare system in Britain.
When do you start paying National Insurance?
You start paying National Insurance if you’re over 16 and are earning either a wage or self-employed profits over a particular amount.
So, as we mentioned before, you’ll pay NI contributions if you’re above the age of 16 and are getting paid a weekly wage of more than £184 (or £6,515 in yearly self-employed profits).
Employees will pay National Insurance – along with income tax and student loan repayments – via the Pay As You Earn system, so contributions are deducted from your monthly pay packet.
Self-employed people will pay National Insurance when they come to complete their annual self-assessment every year.
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