It wasn’t exactly a secret, but yesterday the government confirmed a National Insurance rise designed to plug the gap in health and social care funding. But how much is the National Insurance increase going to be? When will it be phased in? And how will it work?

We take a closer look at the changes and work out what it means for you.

How much is the National Insurance increase?

The NI increase will be 1.25%. It will have to be paid by both employees and employers.

When will the NI rate rise?

The new National Insurance rate will become effective from April 2022.

Why is National Insurance going up?

Most of the extra money raised will go towards cutting NHS waiting lists. A smaller proportion will go towards funding social care. The government also has plans to reform care costs, ensuring no individual pays more than £86,000 for their care during their lifetime. Keep reading to learn more about how this scheme will work.

How much more NI will I pay?

This depends on how much you earn. If you have a salary of £20,000, you’ll pay an extra £130 per year. If you earn £100,000, you’ll pay an additional £1,130.

How long will the National Insurance increase last?

From April 2023, the 1.25% increase in National Insurance will be withdrawn. There will be a new tax in its place: a ‘Health and Social Care Levy’. It will still amount to an extra 1.25% of National Insurance contributions, but there will be some important differences.

How will the Health & Social Care Levy differ from NI?

The key difference will be that people who work beyond pension age will have to pay the new levy. Currently employees are exempted from paying National Insurance contributions when they reach the State Pension age. The self-employed stop paying Class 4 contributions at the end of the tax year in which they reach that age.

As with National Insurance, those earning under £10,000 will be exempt from the new levy.

Employers will also have to pay the equivalent of a 1.25% NI increase under the new scheme. This effectively means the new levy will cost 2.5% of earnings, split between individuals and their employers.

Are there any other tax hikes in the pipeline?

Yes, there will be a 1.25% hike in dividend tax rates from April 2022. This will apply across the Basic, Higher and Additional rate tax bands.

In addition, the pensions ‘triple lock’ will be suspended for 2022-23. It will instead become a ‘double lock’. This means the state pension will increase by the higher of either inflation or 2.5%. The third factor, the average wage increase, has been removed from the equation for a year. This is because large numbers of people returning to work after furlough have created an artificially high increase in average wages.

Paying for care. How will this change?

Currently, if you have £23,500 or more in financial assets, you have to pay for your own care. If you don’t have this much, your local council pays.

Under the new system, the threshold will rise to £100,000. The amount any individual pays towards their care will also be capped at £86,000. However, as the BBC reports, not all spending will count towards the cap. We will explore the government’s ‘Build Back Better’ plan in more detail in a future blog post.

I need help applying the changes. Can you help?

Yes, we can help you make sure that you are paying the correct National Insurance rates via your payroll, or if you are self-employed. If you have any questions, please get in touch with your THP account manager.

Avatar for Jon Pryse-Jones
About Jon Pryse-Jones

Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

Jon’s appreciation for THP extends to his fellow team members and the board.  “They really know how to run a successful business,” he says.  He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.

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