How Will the Increase in the National Insurance Threshold Affect You?

June 30, 2022 4:12 pm Published by

payslip with blue pencil on topThe changes coming to the National Insurance Contribution (NIC) threshold was announced in March by Chancellor Rishi Sunak as part of the 2022 Spring Statement.

The adjustments are designed to lessen the impact of the 1.25% increase to National Insurance Contributions which came into effect from April 6th 2022.

Around 70% of UK workers are likely to be affected by the changes, with an estimated 30 million seeing their take-home pay rise and a further 2.2 million dismissed from paying NI entirely.

Find out how the changes to the National Insurance Contributions threshold will affect you in our latest blog post.

What Are the Changes? 

From 6th July 2022, the level of earnings at which you must start making class 1 National Insurance contributions will increase to £12,570 a year, the same level as the income tax threshold (personal allowance).

This is an increase from the £9,558 threshold for the 2021/22 tax year and £9,880 threshold for April 2022, following the 1.25% increase to NICs.Essentially, it means that those who earn less than £12,570 a year will no longer have to pay National Insurance contributions.

Employees who earn more than the threshold will only have to pay NICs on anything above £12,570 which means that they are still likely to pay less National Insurance overall.

Why Is the National Insurance Threshold Increasing? 

The changes to the threshold are part of the Government’s plan to reduce the cost of living and aim to offset the 1.25% increase to National Insurance Contributions introduced in April 2022.

The hike in National Insurance is due to a new Health and Social Care Levy which is earmarked to help the NHS recover from the COVID-19 pandemic.

From April 2023, a formal legal tax of 1.25% will replace the increase in National Insurance rates which will return to their previous 2021/22 level.

The Health and Social Care Levy is applicable to those who fall into the following classes for National Insurance contributions:

  • Class 1 that are above the primary and secondary thresholds
  • Class 1A and Class 1B for employers
  • Class 4 for the self-employed

How Will the Changes Affect Employees’ Take-Home Pay?

 The impact on employee’s finances will depend on how much they earn. Those on lower incomes will see the greatest benefit, whilst those on higher salaries will pay more in National Insurance compared to the 2021/22 tax year.

On average, the increased NI threshold will save an employee £330 a year.

How Will the Changes Affect the Self-employed?

In line with the changes to class 1 National Insurance Contributions for employees, the National Insurance lower profit limit for self-employed individuals is also set to increase.

From 6th July 2022, the annual lower profits limit will increase from £9,568 to £11,908 meaning that all self-employed individuals who earn less than this amount, will not have to pay National Insurance contributions and only profits above this figure will qualify for National Insurance deductions.

As well as the hike in the lower profits limit, self-employed individuals will also no longer be required to pay Class 2 National Insurance contributions on profits between the small profits threshold (£6,725) and the lower profits limit (£11,908), but will still be able to build National Insurance credits.

HMRC are due to release more information about the changes for self-employed individuals in the near future.

What Does This Mean for Employers? 

As the changes come into effect, it is important for employers to check their payroll software is updated to include the new thresholds if it is not done automatically.

HMRC has advised that Basic PAYE software will be updated with the new National Insurance threshold increases from 4th July 2022 and so to wait until after this date to run payroll for any payments made on or after 6th July 2022.

Need a Hand?

If you need support preparing for the changes to the National Insurance threshold, our team can assist by assessing your current payroll software and ensuring it is up to date with the correct information.

Schedule a free, no-obligation chat with one of our team members. Give us a call on 0117 379 0810 or fill out a contact form to discuss your requirements. 


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This post was written by Karen

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