In the recent Spring Statement, several changes to National Insurance were announced.
These are not straightforward, and this is further compounded by only applying part way through the new tax year – from 6th July 2022 onwards.
The reason why the changes are not introduced from 6th April 2022 is that with short notice, payroll software providers would be unable to change their systems for the new rates in time.
Changes for Employees
Up to 5th July the level of earnings required before paying Class 1 National Insurance will be £9,880pa.
From 6th July the level of earnings required before paying Class 1 National Insurance will be £12,570pa.
Due to the mix of limits, the effective combined limit for the 2022/23 tax year will be £11,908.
For earnings between £6,396pa and £11,908 there will be a nil band where people do not pay National Insurance but will still build up credits towards the state pension and other benefits.
Changes for the Self-Employed
The self-employed pay two different types of National Insurance, called Class 2 and Class 4.
Class 2 is a fixed weekly amount and counts for benefit/state pension entitlements, and Class 4 is a tax based on profits.
For the 2022/23 tax year to 5th April 2023, the level of earnings required before paying Class 4 National Insurance will be £11,908pa.
For the 2023/24 tax year to 5th April 2024, the level of earnings required before paying Class 4 National Insurance will be £12,570pa.
For earnings between £6,725 and £11,908 (£12,570 in 2023/24) there will be a nil band where people do not pay Class 2 National Insurance, but will still build up credits towards the state pension and other benefits.
Where profits are below £6,725 it is possible to pay voluntary contributions to ensure that the contributions record for that year is complete.
It is worth remembering that although the levels at which National Insurance start to apply have increased, the actual rate of National Insurance paid once those are reached has also increased by 1.25%.