Government’s National Insurance Tax Hike: How much would you have to pay?
Yesterday, PM Boris Johnson has announced a UK-wide National Insurance contributions hike from April 2022 to pay for his most awaited health & social care reforms and NHS backlog created due to the COVID-19 pandemic. The controversial policy has drawn widespread criticism and is an unwelcome break on The Conservative Party’s pledge that it will not raise the rate of income tax, VAT or NI.
Who will pay for the increased National Insurance?
The increase affects both the employees and employers would have to pay the increased tax of 1.25% on National Insurance contributions. This would include people in work who are over the state pension age, who don’t currently pay National Insurance. However, people earning less than a threshold of £9,568 will not pay the levy.
When will it be paid?
The policy is to take effect from the next financial year, in April 2022.
From April 2022, there will be a 1.25% increase in National Insurance contributions and then in April 2023, National Insurance contributions will return to their current rates and a new ‘Health and Social Care Tax’ of 1.25% will be introduced. The new tax will appear as a separate line on the employee’s payslip and the delay in the introduction is to allow HMRC to prepare necessary changes in its IT systems to support this.
How much would it cost me per year?
As per government’s calculations, a typical basic-rate taxpayer earning £24,100 will contribute around £180 more in National Insurance contributions in 2022-23, while a typical higher-rate taxpayer earning £67,100 will contribute £715 more. Whereas someone on a £50,000 salary could see their annual NI contributions rise by more than £500.
What about employers?
This rise in National Insurance contributions will, unfortunately, affect the UK small businesses that are yet to recover from last years repeated lockdown and low economic activity. The increase will now make employing staff more expensive for businesses. Although the £4,000 National Insurance Contribution Allowance is here to stay and will cushion the effects for some of the smallest businesses.
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