National Insurance rise - what's changing?

National Insurance. You might have heard about it a lot recently, perhaps more times than you’d care to count. It’s a big current affair being debated anywhere from boardrooms to the House of Commons. And it’s an important one, because it directly affects the salary you receive and your entitlement to State Pension. So what do you need to know?

What is National Insurance?

National Insurance is a tax paid by everyone over the age of 16 to help fund the Basic State Pension and various other benefits. It was invented as a part of Labour’s Welfare State and “cradle to grave” initiative in 1911, a policy that helped bring the country into the modern era after the First World War.

Everyone pays different amounts because National Insurance is a percentage of your salary, and those percentages vary depending on how much you’re paid.

Your National Insurance contribution also counts towards the State Pension. Your contribution helps fund various benefits such as Maternity Allowance and Bereavement Support Allowance, amongst others.

Self-employed people also pay National Insurance, though it works slightly differently and funds fewer kinds of State Pension and benefits.

How do I pay it?

As an employee, National Insurance comes out of your wages. It works like your pension, where the money is subtracted before it arrives in your bank account. There’s nothing extra you need to do. It’s automatic and hassle-free.

IMI pay a little extra for you too.

How is National Insurance changing?

From April 2022 until April 2023, workers in the United Kingdom will be charged a higher rate of National Insurance. It will rise by 1.25 percentage points for a year, helping to fund NHS services.

This applies to everyone, regardless of salary.

To put this into practise, these changes mean that if you earned between £797.01 and £4,189 a month in 2021/2022, your National Insurance contribution rate would rise from 12% to 13.25%.

How much will it cost me?

From April, anyone earning under £9,880 a year, or £823 a month, won't have to pay National Insurance.

However, those earning more than £12,875 a year will pay more:

• If you earn at least £20,000, you'll pay an extra £89
• If you earn at least £30,000, you'll pay an extra £214
• If you earn at least £50,000, you'll pay an extra £464
• If you earn at least £80,000, you'll pay an extra £839
• If you earn at least £100,000, you'll pay an extra £1,089

(The figures depend on your income and assume you work for a full tax year).

Why is this change being made?

The change is designed to help fund the NHS, which has been stretched since the outbreak of COVID-19. The National Insurance increase should contribute to NHS funding.

What happens next?

After the National Insurance increase comes into effect in April 2022, it will last for a year. After that, in April 2023, the rate will return to its original rate of 12%, and a new tax will be introduced called the Health and Social Care Levy. This will, like National Insurance, be paid by all employees. However, unlike National Insurance, it will also be paid by all State Pensioners who are still working.

How do I know how much National Insurance I’m paying?

Because your National Insurance contributions are taken from your salary, you will find the exact amount of National Insurance, including your classification and National
Insurance number, on your payslip.

If you can’t find this, Which.co.uk has a useful calculator that tells you how much NI you’ll pay. Just click on the link below to get started:

https://www.which.co.uk/money/tax/tax-calculators/national-insurance-calculator-aw6yt3g6vd0g

To find out if you've paid enough National Insurance to qualify for the full State Pension, get a forecast on the government’s website: https://www.gov.uk/check-national-insurance-record

For more on National Insurance, consider watching the IMI News clip at the top of this article. And for more IMI News, check out the IMI Newsroom, a hub for informational videos and articles to help you on your journey with IMI.