National Insurance contributions to increase by 1.25%
The Prime Minister has announced an increase to National Insurance contributions of 1.25% - taking effect in April 2022. Today’s health and social care announcement effectively gives the NHS £36bn over the next three years “to fund the biggest catch-up programme in the NHS’s history, tackling the Covid backlogs”.
How it will be funded:
- A new UK-wide 1.25% “health and social care levy” will come in from April 2022, based on national insurance contributions. It will be paid by working adults, including people over the state pension age (unlike normal national insurance, which is not paid by pensioners).
- Initially from April 2022 national insurance contributions rates will go up by 1.25%. But from April 2023, once tax systems have been updated, the levy will be separated, so that the levy will appear as a separate line on pay slips. At this point working adults above state pension age will start contributing.
- The Government will also increase the rates of dividend tax by 1.25% from April 2022.
How much will people pay (Government analysis):
- 40% of all businesses (mostly small business) will not have to pay anything extra due to the Employment Allowance.
- ‘Big businesses will pay the most’ most of the extra revenue coming from the increase to employers NICs, with 70% of the money coming from the biggest 1% of employers
- The changes are progressive. (i.e., those who earn more will pay more) - a typical basic rate taxpayer earning £24,100 will pay £180 a year, or £3.46 per week. A typical higher rate taxpayer earning £67,100 - in the top 15% of earners - will pay £7.15 a week.
- Higher rate taxpayers - 14% of the total - will pay half the revenue. 6.2 million people earning less than £9,568 will not have to pay.
Commenting on today’s announcement, Chris Sargisson, Chief Executive of Norfolk Chambers of Commerce said:
“A rise in NI contributions represents a blow to many recovering businesses at this crucial point in the UK and Norfolk’s economic recovery.
“A greater focus to help businesses to thrive and sustainably deliver tax revenues to support and improve public services would be welcomed. Whilst many businesses understand the urgent need to improve our health and social care system, they also look to the government to help mitigate this increase to the cost of doing business.”