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From April 6th 2022, employees, businesses, and the self-employed will all pay an extra 1.25p in every pound in their National Insurance. 

With energy bills already taking a hit as well as the cost of petrol rising every day, this new NI tax increase may seem like pennies, but for some people, it will add more fuel to the fire as people are already struggling with the cost of living and getting into debt.

After the government’s announcement in September 2021 about the increase, many have criticised this rise, saying it has intensified an already difficult cost of living crisis.

The Labour Leader Keir Starmer has slammed the NI rise, saying that the UK now has the highest rate of taxation in 70 years. He called it the “wrong tax at the wrong time”, “In the middle of the worst cost of living crisis for decades today, the government chooses to increase taxes on working people.”

How much will National Insurance increase on April 6th, 2022?

Employers, employees, and the self-employed will need to pay 1.25 p more in the pound in National Insurance. Unlike previous NI, this will also be paid by state pensioners who are still working.

According to the Institute of Fiscal Studies, the increase in National Insurance for employers and higher-income workers will mean that it will raise an extra £1.09 billion in a year for the government.

How long will we continue to pay the higher rate of National Insurance 2022?

The government has assured the public that the increase will only last a year and will return to its higher rate in April 2023. Instead, it will be replaced by a new health and social care levy after this date. More details will follow in the next few months.

What will the extra National Insurance money be used for?

The extra 1.25p to every pound will be collected as a new Health and Social Care Levy.

The government has said that the extra money will initially go towards helping the NHS, and then a chunk of it will be moved into the social care system.

The social care system in the UK is designed to help people with high care needs and older people.

The UK Prime Minister has said it is “necessary, fair and responsible.’ He added that “it would “provide the health and care system with the long-term funding it needs as we recover from the pandemic”.

How much will the National Insurance tax change cost me?

From April 2022, anyone earning £9,880 a year will pay the extra National Insurance. However, in July 2022, the threshold to pay NI will be paid in earnings above £12,570 a year.

When this is worked out together, it means that over the next 12 months, someone who earns less than £34,000 a year will pay less in National Insurance than they did in previous years.

However, people in the higher-earning brackets will have to pay more for National Insurance. For more details, refer to the table below:

Differences made by higher rate and threshold

Earnings Threshold The difference made (per year)
£20,000 £-178
£30,000 £-53
£50,000 £197
£80,000 £572
£100,000 £822

(Data used from gov.uk)

Will the National Insurance tax change benefit lower-paid earners?

The rise in the National Insurance threshold could help living costs in the future, but there has been some criticism regarding its impact on the current financial climate.

A senior personal finance analyst, Sarah Coles, has said, ‘Awful April is just the beginning of an incredibly tough few months. The real pain of the National Insurance hike will be felt on payday, at the end of the month.”

She continued by expressing her concerns further regarding the NI tax rise, “In the intervening months, the threshold will be just £9,880, and the 1.25 percentage point rise will leave someone earning £20,000 paying £130 more a year, someone on £30,000 will pay £255 more and someone earning £50,000 will pay £505 more a year.

“And while 1.25 percentage points don’t sound like much of an uplift, in reality, it will mean someone on an average wage will pay 10% more.”

Is there anything people can do to help alleviate the National Insurance tax rise?

Many people are struggling to keep up with their living costs and the rise of the NI, leaving some people worse off in the intervening months until the higher-earning threshold kicks in. Are there any ways people could combat the impact of the rise?

One suggestion would be to take home a lower pay by opting for a salary sacrifice scheme. A salary sacrifice would mean that employers would need to lower the salary payments and instead use it in a non-cash benefit such as pension contributions.

However, the disadvantage to this would be that lowering your salary would mean that it could affect your mortgage applications or your state allowances. You must seek financial advice before you consider doing this.

What help can I get if I am already struggling with my living costs?

If you are finding yourself in a position where you are not able to manage your living costs and getting yourself into debt, then head over to our debt help section to get advice on ways in which you can manage your debt situation.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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