But the plans come at a time when the cost of living is going through the roof, so pressure on the Government to cancel the 1.25% increase is rising.
Recently, the Confederation of British Industry (CBI) warned that the planned rise in national insurance will squeeze budgets, and in turn, affect economic growth at a critical point in the country’s recovery from the coronavirus pandemic.
However, Prime Minister Boris Johnson and Chancellor Rishi Sunak recently confirmed the rise ‘must go ahead’.
Our Executive Director, Paul Hulme, commented ‘If the planned rise does go ahead in April, then I’d expect the Government to present more ambitious plans in the Spring Budget to provide the economy longer-term growth potential.’
So, what does the National Insurance increase look like?
The rise will see employers, employees and the self-employed pay 1.25p more in the pound from April 2022. From April 2023, the extra tax will be collected separately from NI, as part of the new Health and Social Care Levy.
Impact on employees
Pre-Covid, this increase would have gone unnoticed, but with the cost of everything going up, there are concerns the increase will be a heavier blow for the lower paid. This is because employees pay 12% National Insurance on earnings between £9,564 (£9,880 from April) and £50,268. Any earnings above this amount are taxed at a rate of just 2%, so will increase to 3.25% from April.
Impact on employers
The increase will affect employers too, as they will also pay an additional 1.25% NI on top of the contributions they’re already paying. Employers cover slightly more of the cost of NI than employees, with a lower threshold on which they pay:
Impact on self-employed
The self-employed will also see a 1.25% increase. Paying taxes through Self-Assessment means the rate is based on income after business expenses, so the increased rates will be felt harder here, directly impacting how much drawings can be paid.
Get in touch
We’re here to help you through the process, so if you’d like to talk through what this means for you and your business with one of our tax or payroll specialists, please call us on 01782 279615 for Stoke or 0161 236 7677 for Manchester.
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