NATIONAL INSURANCE –

THE LOWDOWN

15

MARCH, 2022

National Insurance
Tax

There’s plenty of column inches in the news dedicated to the cost of living crisis at the moment. As well as having to deal with soaring inflation and sky-high energy bills, it’s important to prepare for the fact that we’re all going to pay more National Insurance from April.

How it will affect your own finances depends on earnings. Essentially, the more you earn, the bigger the impact on take home pay.

National Insurance is a tax on earnings paid by both employees and employers; the self-employed pay it on their profits. It’s used to pay for the NHS, benefits and the state pension. Here we’ve got the low down on the changes.

HOW MUCH IS NATIONAL INSURANCE RISING?

Employees, employers and the self-employed will all pay 1.25p more in the pound for National Insurance from April 2022.

Lower National Insurance thresholds1 included in the Autumn Budget in October would normally mean workers pay less tax. (Thresholds tend to increase each April to account for inflation.)

Yet the increase in National Insurance by 1.25% means that most taxpayers will be subject to higher bills.

WHERE IS THE EXTRA CASH GOING?

The government says the changes are expected to raise over £12 billion a year2. Initially, this will go towards easing pressure on the NHS.

A proportion will then be moved into the social care system. The aim is to make sure people in England pay no more than £86,000 in care costs from October 2023.

Proposals3 state that pensioners will still have to pay up to £86,000 – but then the Government will step in cover the rest of the bill.

Government estimates state that private payers would reach the £86,000 cap after three years in residential care and six years receiving care at home.

There will be other crucial changes. At the moment you have to pay for residential old-age care if you have more than £23,250 in assets if you live in England. The threshold is £50,000 in Wales4 and £28,750 in Scotland5.

The £23,250 limit will rise to £100,000 under the Government’s new plans taking effect in October 2023.

People with assets of between £20,000 and £100,000 would contribute towards the costs of their care on a sliding scale.

Anyone with savings under £20,000 will not pay anything.

“From April there will also be an increase on tax charged on income from dividend payments.”

THE FUTURE OF NATIONAL INSURANCE

Technically, from April 2023, National Insurance will return to its current rate. Yet the extra tax will still be collected, badged as a new Health and Social Care Levy. This levy – unlike National Insurance – will also be paid by state pensioners who are still working.

MORE PAIN FOR TAXPAYERS

The National Insurance increase is not the only thing in the pipeline that will impact our income.

Back in the March budget, income tax thresholds were frozen until 20266, meaning that people on more modest salaries will also be pulled into higher tax brackets and pay higher tax bills.

Frozen thresholds include the personal allowance, which is sticking at £12,570.

From April there will also be an increase7 on tax charged on income from dividend payments. On an amount that exceeds the £2,000 limit per person, basic, higher and additional-rate taxpayers currently pay 7.5%, 32.5% and 38.1% respectively. In the new tax year – from 6 April 2022 – the rates are rising. For basic rate taxpayers it will climb to 8.75% and for higher-rate and additional-rate taxpayers it will rise to 33.75% and 39.35% respectively.

If there’s ever been a time to ensure your money is working as tax efficiently as possible, it’s now.

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This Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person.

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