How much more National Insurance will I pay?

National Insurance rates will rise 1.25% from April 2022 as the government introduces a health and social care levy on earnings to raise £36 billion over the next three years.

Under the controversial plans, millions of UK workers will see their tax bills increase. The levy will be paid on all earned income, meaning those working beyond state pension age will also be charged, but this is set to kick in from April 2023.

Dividend tax rates on shares will also go up by 1.25%, meaning that from April next year basic rate taxpayers will pay 8.75%, higher rate taxpayers will be charged 33.75% and additional rate taxpayers will pay 39.35% on this income.

National Insurance is paid by employers, employees and self-employed workers, except for those on low incomes, and the contributions you make during your working life will affect the amount of state pension you’re eligible to receive.

The rules on how much you pay varies depending on whether you’re employed or self-employed. Employees currently pay Class 1 contributions, which is 12% on pay over £797 per month or £9,568 per year. Earnings above £50,270 are charged at 2%. Once the increase is introduced, it is assumed these rates will rise to 13.25% and 3.25%.

An individual earning £100,000 would see a £1,130.40 rise to their tax bill, a hike of over 19% in the amount of NI paid, whereas those on a lower income of £20,000 would pay £130.40 more each year – an effective increase of 10%. The additional contributions will be listed separately on payslips.

Self-employed workers pay Class 2 and Class 4 contributions on their profits. In 2021-22, that’s £3.05 per week if you earn more than £6,515, which is Class 2, plus a 9% Class 4 contribution on earnings between £9,568 and £50,270. Earnings over £50,270 are charged at 2%.

If the Class 2 contributions remain at £3.05 per week, it is assumed that the NI rate rise would mean self-employed workers will pay Class 4 contributions of 10.25% and 3.25%.

While the tax is paid differently by self-employed workers, the increases to each income band are the same as employed workers. Someone earning £20,000 would pay £130.40 more for NI contributions, while a higher earner on £100,000 pays £1,130.40 extra.

If you’re unsure about how the changes will affect you or your business, contact SW&A’s experienced and knowledgeable friendly team on 01905 622202.

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