National insurance is a compulsory tax paid by employees and employers. This was introduced back in 1911 and expanded by the Labour government in 1948. The tax is applied to all those over 16 years of age (when you receive your National Insurance number) until the age that a person becomes eligible for state pension. Contributions are deducted from employed people earning above a ‘threshold’ the money collected by HMRC goes toward pensions, benefits and state support for the unemployed, retired or sick.
In effect, everyone puts into the ‘pot’ but you then also can receive payments in the form of their state pension and other benefits such as maternity allowance.
Most tax payers will have noticed the change on their payslip since April 6th with the additional 1.25% with the intention of this going directly to support the NHS and social care to help recover from the pandemic. From next year it is proposed that this additional amount be detailed as a separate deduction on payslips as a ‘Health and Social Care Levy’.
How did this affect you?
If you were of the many whose salaries did not increase with the tax year, the amount you received post April 2022 would have been slightly less than you did last year.
In light of the current economic crisis, the government released a plan in the Spring Statement to ‘ease the burden on hard-working tax payers, allowing people to keep more of their earned income.’ The government states that most 30 million people will benefit, with a typical employee saving over £330 in the year from July. It is suggested that around 70% of NIC payers will pay less NICs, even after the introduction of the additional levy for the NHS/Social care.
As of 6th July 2022, the threshold for NI has increased from £9,880 to £12,570. This is the largest increase in a basic rate threshold ever and the largest single person tax cut in a decade.
It all depends on how much you earn, but simply put:
The government has created a tool to estimate how these changes will affect you Estimate how the National Insurance contributions changes will affect you – GOV.UK (www.gov.uk)
We have updated our system to ensure that these thresholds are in place and all is working correctly, and each week we send our RTI reports to HMRC with all tax and NI contributions noted.
Sadly you won’t be seeing massive changes to your payment, as it might not be something that is visible immediately with the figures being based upon annual income. We want to keep you informed so that should you notice any differences on your payslip in the future with the NI calculations, this is the reason behind it.
Should you have any questions about National Insurance deductions or any other part of your payslip please do not hesitate to contact us.
We have been providing comprehensive umbrella payroll services for contractors and agency workers for over a decade.