WORKERS are facing bigger tax bills from this month as National Insurance rates are going up.
Employees who earn £184 per week or more have to pay the tax, and the rise will leave some households hundreds of pounds worse off.
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Workers currently pay 12% on earnings between £9,564 and £50,268 and a further 2% is paid on wages over that.
But that is rising by 1.25 percentage points on April 6 – so you’ll pay 13.25% tax on those earnings.
Here’s everything you need to know about the current National Insurance rates and how they are changing.
What is National Insurance?
National Insurance is a tax on your earnings, which is put into a fund to use for some state benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a UK national, you should receive an NI number and card automatically before you turn 16.
This number allows the government to track your earnings and apply the right amount of tax.
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Who currently pays it?
You pay National Insurance if you’re 16 or over and either:
- an employee earning above £184 a week
- self-employed and making a profit of £6,515 or more a year
It is deducted from your wages each month.
If you’re employed, you can see your contributions by looking at your pay slip.
Once you reach state pension age, you don’t need to pay it at all.
There are different types of National Insurance – known as ‘classes’ -, and the type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.
Why do I need to pay it?
Paying National Insurance entitles you to some state benefits, though these vary according to your employment status.
If you haven’t met the minimum amount of contributions, you may not qualify for some benefits.
For instance, you need to pay National Insurance for a set number of years to be entitled to receive the state pension.
You need at least 10 years worth of contributions to get any state pension at all, and 35 years to get the full amount.
What are the thresholds and how much do I pay?
The threshold for National Insurance payments is currently £9,568 a year for employed workers and £6,515 for self-employed people.
At the moment, most people pay 12% on anything they earn up between £184 and £967 per week. You have to pay 2% on anything you earn over £967 a week.
However, these thresholds are changing in July, which will protect some people against the impact of the rate rise.
For example, if you earned £1,000 a week:
- You pay nothing on the first £183
- 12% up to £962, which equals £93.48
- Then 2% for the remaining £38, which equals 76p – leaving a total of £94.24
From April 6 this will change to:
- You pay nothing on the first £183
- 13.25% up to £962, which equals £103.21
- Then 2% for the remaining £38, which equals 76p – adding to a total NI tax of £103.97
If you earn between £120 and £184 a week, your contributions are treated as having been paid to protect your National Insurance record.
You’ll pay less if:
- you’re a married woman or widow with a valid ‘certificate of election’
- you’re deferring National Insurance because you’ve got more than one job
In July, the National Insurance thresholds will change, the Chancellor announced in the Spring Statement last month.
The earnings level at which people start paying the new health tax will be raised from £9,500 to £12,500, effectively taking people out of the hike.
Why are rates rising and when will it happen?
The UK government has said that from April 6, Brits will have to pay a higher National Insurance bill.
Rates will rise by 1.25 percentage points and the money will be spent on the NHS and social care in the UK.
The increase will apply to:
- Class 1 – paid by employees
- Class 4 – paid by self-employed
- secondary Class 1 – paid by employers
MoneySavingExpert Martin Lewis has shared a video explaining who will benefit from the threshold change.
The threshold rise will cancel out the impact of the rate increase for some workers – check how it will really affect you.
