Changes to National Insurance Thresholds and Rates

Who will be affected by the NIC increase and why?

In an effort to combat the impact of the Covid-19 pandemic on the NHS and health and social care systems, it was announced that a 1.25% increase in National Insurance contributions will take effect from 6th April 2022 until 5th April 2023. The Government says that the changes are expected to raise £12bn a year, which will initially go towards easing the pressure on the NHS and then a proportion will be moved into the health and social care systems over the following 3 years.

From 6th April 2023, National Insurance will return to its current rate and the extra tax will be collected as a new “Heath and Social Care Levy”. This will show up separately on payslips. The levy, unlike National Insurance, will also be extended to state pensioners who continue to work beyond retirement age.

The increase will apply to the following:

Class 1 (paid by employees)

Employees paying Class 1 National Insurance will pay:

Earning threshold less than £9,880: 0%

Earning threshold between £9,880-£50,270: 13.25%

Earning threshold over £50,270: 3.25%

Class 2 and Class 4 (paid by self-employed)

Profit threshold less than £6,725: 0%

Profit threshold between £6,725-£9,880: £3.15 per week (Class 2)

Profit threshold between £9,880-£50,270: 10.25% + £3.15 per week

Profit threshold over £50,270: 3.25% + £3.15 per week

Secondary Class 1, 1A and 1B (paid by employers)

For employers the NIC rate will increase from 13.8% to 15.05%.

Dividend tax rates to increase

Similarly to the National Insurance rate rises, a 1.25% increase to the rates of dividend tax, which are payable on dividend earnings of above £2,000, will also apply.

The rate you pay depends on your income tax band, as shown below:

Basic rate: increased from 7.5% to 8.75%

Higher rate: increased from 32.5% to 33.75%

Additional rate: increased from 38.1% to 39.35%

Don’t forget to make a note of any changes ahead of April so that you can adjust your accounting systems and payroll, to avoid any errors made following the revised rates.