What Does the 1.25% Rise in National Insurance Mean For Me?

From April 2022, your National Insurance contributions will increase by 1.25 percentage points. This is whether you are an employee, self-employed, or an employer. Discover how this applies to you, how much it will cost you and what steps you can take to protect your personal finances.

Connor Campbell Published on 09 September 2021.
What Does the 1.25% Rise in National Insurance Mean For Me?

On 7 September 2021, Prime Minister Boris Johnson announced that the National Insurance contributions (NIC) rate will rise by 1.25 percentage points at the start of the new tax year in April 2022.

This increase not only applies to contributions made by Class 1 employees (those who earn more than £797 a month and are under state pension age) and the Class 4 self-employed (those earning annual profits of more than £9,569), but to employers as well.

And though National Insurance rates will return to their current levels in April 2023, the increase in NIC will be replaced by a UK-wide ‘Health and Social Care Levy’, also taxed at 1.25%. Unlike National Insurance this levy will also apply to state pensioners who are still working.

It can be hard to figure out from the headlines exactly how this will affect you personally.

That’s why we’ve put together a guide on what the new National Insurance rates are; how much more money will end up coming out of your wage packet; and what you can do to help manage any changes to your personal finances.

» MORE: How National Insurance works

What are the new National Insurance rates?

The amount you pay in National Insurance is determined by whether you are employed or self-employed, and how much you earn. This is no different for the new NIC rates from April 2022.

Employed

The National Insurance rate for employees will rise from 12% to 13.25% on incomes of £9,564 to £50,268 a year (£797 to £4,189 a month). The rate for any income over £50,268 a year (over £4,189 a month) will rise from 2% to 3.25%.

You do not pay National Insurance on your first £9,564.

Self-employed

The changes in National Insurance only apply to those self-employed who make more than £9,569 in profits annually.

The National Insurance rate will rise from 9% to 10.25% for profits between £9,569 and £50,270. Any profits over £50,270 will then be taxed at a National Insurance rate of 3.25%, rising from the current 2%.

This is on top of the £3.05 a week you pay if your self-employed profits are £6,515 or more.

Employers

For employers, the National Insurance contributions rate paid per employee will rise from 13.8% to 15.05% for income above the ‘secondary threshold.’ That’s a salary of £8,844 to £50,268 a year (£737 to £4,189 a month).

Why has the National Insurance contributions rate risen?

In his statement to the House of Commons, Johnson said that the rise in National Insurance was to provide “permanent additional investment in health and social care”.

This comes after the government spent more than £407 billion to “support lives and livelihoods” throughout the Covid-19 pandemic.

Johnson went on to say that it would be “irresponsible” to meet the costs needed to fund the NHS and social care “from higher borrowing and higher debt”. This view led to the decision to increase the National Insurance contributions rate instead.

The government has stated that these changes should raise almost £36 billion over the next three years, with the money going towards health and social care in the UK.

How much more National Insurance will I pay a year?

How much National Insurance you pay is tied to how much you earn. So too is how much extra in NIC you will pay once the higher rate is implemented in April 2022.

The table below is based on contributions made by Class 1 employees, assuming they work for a whole tax year.

Annual income Current NIC NIC from April 2022 Annual difference
£10,000 £52.32 £57.77 £5.45
£20,000 £1,252.32 £1,382.77 £130.45
£30,000 £2,452.32 £2,707.77 £255.45
£40,000 £3,652.32 £4,032.77 £380.45
£60,000 £5,079.12 £5,709.57 £630.45
£80,000 £5,479.12 £6,359.57 £880.457
£100,000 £5,879.12 £7009.57 £1,130.45

There are similar changes if you are self-employed.

For example, if your business made £20,000 in annual profit, from April 2022 you would pay £130.39 more in National Insurance. And if your business made £60,000 in annual profit, it would be an extra £630.39 a year.

Changes to dividend tax and pensions ‘triple lock’

The increase in National Insurance contributions wasn’t the only change announced on 7 September 2021.

In the same push to raise funds for health and social care services, Johnson revealed that the dividend tax would also be increased by 1.25 percentage points. Dividends are the regular payouts investors receive from companies they own shares in.

On top of this, the Conservative government abandoned its pensions ‘triple lock’ manifesto promise. The lock will be suspended for the 2022/23 financial year, meaning the annual state pension will not increase in line with the rise in average earnings. Instead, it will increase by 2.5% or at the rate of consumer inflation, whichever is higher.

» MORE: What does the pension triple lock suspension mean for you?

Managing changes in your personal finances

There are a number of positive steps you can take to try to ensure that these changes to National Insurance contributions don’t negatively affect your personal finances. These include:

Work out your after-tax, after-essentials income

This includes all your regular weekly, monthly and yearly outgoings. It will give you hard numbers related to where you may be overspending, and how much you could potentially save.

The 50/30/20 rule

A handy way to budget and divide your take-home pay is:

  • 50% on essentials, such as rent, mortgage, bills and food
  • 30% on wants and non-essential spending
  • 20% on paying off debt and/or into savings

Spending priorities

Although this may not be applicable to everyone, a good rule of thumb when it comes to prioritising your spending is to:

1) Clear your ‘toxic debt’, such as payday loans or high interest credit cards.

2) Start an emergency fund that can cover unexpected expenses.

3) Contribute to your workplace pension scheme.

4) Continue to add to your emergency fund.

5) Pay off your remaining debts.

» MORE: Budgeting 101: how to make your money go further

Source: Getty Images

About the author:

Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more

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