The rate of National Insurance Contributions (NICs) will be temporarily increased from 6 April 2022. The temporary increase was announced by the UK Government and will last for a year. The increase was legislated as a means to increase spending on health and social care following the UK’s response to the Covid-19 pandemic and identifying a gap in social care costs.
From April 2022, the rates are due to increase by 1.25 percentage points with the main rate for employees due to rise from 12% to 13.25%. For umbrella company workers this is a double hit as employer’s NICs is also to increase from 13.9% to 15.05%. Umbrella Company employees will see the impact of this increase in their first pay in April 2022.
National Insurance is currently paid on earnings above £9,568. From April 2022 this threshold will increase to £9,880. This means that no NICs is paid on earnings below these thresholds. The higher rate threshold is £50,270 which will remain into the next tax year. The adjustment to the starting threshold means that the tax is applied to less of the individual’s earnings but the government will be introducing a higher rate to be applied. The increase will also be applied to NICs received from the self-employed.
The increases in NICs from April 2022 are forecast to raise around £14billion per year. Research estimates that around 40% of the forecast revenue (£5.6billion) will come from Employer’s NICs.
Unlike Income Tax, National Insurance Contributions are not charged on income from other sources such as savings and investments, pensions or rental income from property. Payment of NICs qualifies individuals to receive certain state benefits, most notably a state pension.
From April 2023, these NICs changes will be legislated separately as a “Health and Social Care” Levy and the NICs rates will return to 2021/22 levels.