Millions of workers in the UK will get a pay rise this week when a change to National Insurance (NI) kicks in.
From today (6 July), the NI threshold has increased to match the income tax personal allowance, rising from £9,880 to £12,570.
The majority of workers however are unlikely to see the rise in July wage packets, as they are usually paid in arrears, although those paid in advance will see it this month.
Who will benefit from the allowance rise?
Since April, employees have paid 13.25 per cent in contributions on any earnings between £9,880 and £50,000, and 3.25 per cent on everything over £50,000.
The move was introduced by former Chancellor Rishi Sunak, as a one-year levy to fund social care in the UK.
The NI threshold rise means a pay hike for around 30 million people and at the same time, just over two million on low earnings will be exempt.
A typical employee will save more than £330 in the year from July, according to the Government.
What happens in 2023?
The move is designed to lessen the impact of the 1.25 percentage point rise in employee NI in April.
Anyone earning less than around £35,000 will see their pay packet return to roughly the same level it was before April, but higher earners will still pay more in NI contributions than they did in March.
Someone on £30,000 would have paid around £204 per month before April, then rising to £222, and they will now see this fall to around £192.
From next April, the 1.25 percentage point increase will be replaced by a new Health and Social Care Levy, a new tax in its own right, and separate to NI which will return to its previous level.
How much will working pensioners pay?
At that point, the Health and Social Care Levy is also due to be applied to the earnings of those above the state pension age.
Pensioners who are still working after the state pension age (currently 66) don’t pay national insurance. However, from April 2023 the new levy will be deducted from their earnings.
For help and advice on NI and other tax matters, contact our team today.
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