Home Business NewsBusiness National Insurance threshold to rise from 6 July – here’s how it affects you

National Insurance threshold to rise from 6 July – here’s how it affects you

by LLB Reporter
4th Jul 22 11:23 am

From 6 July the National Insurance threshold rises to £12,570 but anyone earning more than £31,500 would have been better off under the old system.

Someone earning £80,000 is paying £609 more in NI this year while over the next five years middle earners are squeezed – someone on £50,000 will pay an extra £1,821 in NI.

Laura Suter, head of personal finance at AJ Bell, comments: “From 6 July millions of people will see their National Insurance bills cut, as the threshold at which people start paying the tax is raised to £12,570. The move means that most people on an annual salary of up to £12,570 will pay no income tax and no National Insurance.

“However, while it will be a welcome relief for many people to see the amount deducted for National Insurance on their payslip fall from next month, we’re all still paying more tax than when Chancellor Rishi Sunak started changing the system.

“The Government has heralded July’s change as a cut in tax, that will save the average worker £330 a year, but millions of people will actually be paying hundreds of pounds more in taxes when compared to the previous system. By raising the National Insurance rates by 1.25 percentage points in April Mr Sunak has increased the tax burden for many, despite the July change in the threshold at which you start paying it benefitting some.

“In some ways it’s admirably audacious to announce a massive tax hike and then try to win plaudits for reducing the very tax rates you increased, but the end result is that much of the population will still be paying higher taxes. The OBR itself finds that for every £4 Rishi Sunak increased taxes by last year he’s only giving back £1 in the updated plans – which is far from a tax cut.

How much more will people pay?

We’ve compared how the current system stacks up to if the Chancellor had left National Insurance rates at 12% for the lower band of earnings and 2% for the higher band, as well as increasing the thresholds by inflation. Under the current system the rates were increased to 13.25% and 3.25% from April, while the lower threshold increased with inflation from April to £9,880 and then increased to £12,570 from July.

In the current tax year, anyone earning around £31,500 or less will be better off under the new system, to varying degrees. Someone earning the new threshold of £12,570 will pay £234 less in National Insurance this tax year than they would have under the previous system. However, the move doesn’t benefit the lowest earners, as they wouldn’t have met the threshold for paying National Insurance under the old system. For example, someone on £10,000 a year only saves £10 a year in National Insurance under the new system.

Anyone earning more than around £31,500 will face a bigger bill and higher earners will be hit with hundreds of pounds in additional National Insurance thanks to the Chancellor’s changes. For example, someone earning £35,000 will only pay £47 more in tax this year, but those earning £45,000 will be hit with an extra £172 in National Insurance in 2022/23. A higher earner on £80,000 will be paying £609 in extra National Insurance costs – more than £50 a month more, and someone on £100,000 is facing an extra £859 on their bill.

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