National Insurance rise: How much more will I pay?
Costs for employers and employees
National Insurance is rising in April 2022 for employees, businesses and the self-employed. The 1.25% increase comes at a time when the cost of living is rising and businesses are trying to recover from the impact of coronavirus.
The rise is being brought in to help fund health and social care in the UK and it's estimated workers will pay an extra £255 a year in tax.
The first £9,564 (£797 a month) of a person's salary is free of NI, and then anything up to £50,268 will have 13.5% NI applied from April (It is currently 12%). Anything earned over £50,268 has 2% applied.
The rise will not apply to those over the state pension age, for now.
How much more will you pay - employees
The more you earn does not necessarily mean the more you pay. Because NI dramatically drops to 2% on anything earned over £50,268, the higher the salary the lower the proportion of a salary is going to the Treasury.
| Annual salary | Current NI contributions | Rise in NI contributions in April 2022 |
|---|---|---|
| £20,000 | £1,251 | £130 |
| £30,000 | £2,451 | £255 |
| £50,000 | £4,851 | £505 |
| £80,000 | £5,470 | £880 |
| £100,000 | £5,878 | £1,130 |
How much more will you pay - employers
Businesses have to pay NI for their employees as well, with the current rate 13.8% on anything over £8,844. This is rising 1.25% to 15.05%.
| Annual salary | Current employer contributions | Rise in NI contributions in April 2022 |
|---|---|---|
| £20,000 | £1,539 | £140 |
| £30,000 | £2,919 | £264 |
| £50,000 | £5,680 | £514 |
How much more will you pay - self-employed
Self-employed workers pay either Class 2 or Class 4 National Insurance. The tax will affect both profits and your own salary.
Ways for businesses to find the 1.25% increase
Without taking action by either rising prices or cutting back, the business simply loses profit. Of course if the business can afford to do this it will make them more competitive, plus more attractive to current and prospective employees.
But for many, especially small businesses, this simply isn't financially feasible. So what else can be done?
Cut back on benefits
It may save a business money if it moves providers for some of the benefits it offers, such as gym discounts or private medical insurance.
Or it may be that some benefits do not have a high employee uptake so they could be cut from the list of benefits on offer.
Less official perks like Christmas parties and work socials could also have their budgets cut. Staff bonuses could be reduced although this would probably have a higher impact on staff morale.
Cut back on contributions to employee pensions
The business may offer to contribute a set percentage of an employee's salary into a workplace pension scheme. The minimum the government requires is 3% but the business may offer more as an additional perk of employment.
Use a salary sacrifice scheme to your advantage
Salary sacrifice is where the employer takes a slice of a worker’s salary and puts it away into a scheme, rather than paying it out and then collecting it. A business could offer to cut its employees’ salary but pay the difference directly into the scheme. This means they are not out of pocket in the long run, but the business is saving on the amount of national insurance it is paying out as less is going into their take-home pay.
Find out more about salary sacrifice schemes as well as the advantages and disadvantages here.
Don’t forget about 2023
While the focus is on the changes coming into effect in 2022, things will slightly change again next year. National Insurance will return to pre-pandemic levels (of 12% for anything between £9,564 and £50,268, and 2% thereafter) but the 1.25% rise will be dressed up as a Health and Social Care Levy. This will then affect all workers, including those who are above the state pension age but are working.