National Insurance: Will tax changes save me money?

By Anthony Reuben & Tom Edgington
BBC News

  • Published
Woman working in a coffee shopImage source, Getty Images

From today, people can keep more of their income before they start paying National Insurance (NI).

For workers earning less than about £34,000, this change will more than offset the 1.25p NI increase that came into effect in April.

How is the National Insurance threshold changing?

NI is paid by employees, employers and the self-employed:

  • Employees pay NI on their wages
  • Employers also pay extra NI contributions for staff
  • The self-employed pay NI on their profits

From 6 July, workers will be able to earn £12,570 a year before they have to start paying NI - up from the previous threshold of £9,880.

This change will bring NI in line with the personal allowance for income tax.

The then Chancellor Rishi Sunak announced it in March, in response to the rising cost of living.

What is the Health and Social Care Levy?

Since 6 April, workers and employers have been paying an extra 1.25p in the pound for NI. The increase was part of the government's plan to fund the NHS and social care.

From April 2023, the government says National Insurance will return to its old rate and the extra 1.25p in the pound will be collected as a new Health and Social Care Levy.

This levy - unlike NI - will also be paid by people over the state pension age who are still working.

This year's NI increase means the government has gone back on its 2019 election manifesto promise not to raise it.

How much will the tax changes cost me?

Combining the 1.25p increase with raising the threshold means anyone earning below about £34,000 will pay less NI in the 12 months from April 2023 than last year.

Anybody earning more than that will pay more.

An employee on £20,000 a year will pay £178 less NI in 2022-23 than they did the previous year.

Someone on £50,000 will pay £197 more.

What is the tax increase for?

The original 1.25 percentage point increase in NI was supposed to raise £12bn a year. Increasing the point at which people start paying it, will cost more than half of this.

The government says the extra money will initially go towards easing pressure on the NHS and then a proportion of it will be moved into the social care system.

Social care mainly helps older people and people with high care needs, with tasks such as washing, dressing, eating and taking medication.

However, the system is under pressure because of an ageing population and the pandemic. It has been hit by staff shortages and falling government spending.

Image source, Getty Images
Image caption,
A proportion of the NI increase will be moved into the social care system.

The aim is to make sure people in England pay no more than £86,000 in care costs from October 2023 (not including accommodation and food).

Anyone with assets - such as a home, savings or investments - worth less than £20,000 will have their care fully covered by the state.

Those with between £20,000 and £100,000 in assets will have their care costs subsidised.

NI is a UK-wide tax, and although the government decision to increase it is focused on funding health and social care in England, the tax increase is also expected to raise extra money that Scotland, Wales and Northern Ireland could choose to spend on those services.