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As an employee, there are two changes being made to the National Insurance contributions (NIC) rules which will affect the amount of pay that you take home each month in the upcoming 2022/23 tax year.

Employees pay Class 1 NIC on their salary.

In the Spring 2022 Budget, the Chancellor announced that the level at which Class 1 NIC becomes payable by employees was to increase from 6 July 2022 onwards from £190 per week to £242 per week.  It was stated that this change, which would equate to a saving of approximately £330 for a typical worker, would benefit approximately 30 million working people, with 70% of those paying less NIC from 6 July 2022 onwards.

All good news so far, however back in the 2021 Winter Budget the Chancellor announced that a new Health & Social Care Levy was to be brought in from 6 April 2022, with the money collected from this levy going straight to the NHS and for social care funding.

In the 2022/23 tax year this levy is to be collected by way of a 1.25% increase in the Class 1 NIC rate, taking it from 12% to 13.25%.  This change in isolation results in employees paying more NIC on their salaries.

If both of these changes are taken together, then lower earners will be better off but higher earners will be worse off.

If we look at an employee on a salary of £25,000, which equates to £480 weekly, we can compare what his NIC bill would be before and after both of the above mentioned changes:

So, the above mentioned changes will result in an employee on a salary of £25,000 paying £3 less NIC per week, a saving of £156 over the course of a normal year.

If we carry out the same calculations for an employee on a salary of £45,000, which equates to £865 a week, then the employee is actually worse off by £1 a week, or £52 over the course of a normal year.

The tipping point at which an employee is actually worse off once both of the new changes have been implemented is where a salary exceeds £35,000.

So, although the 2022 Spring Budget headline grabbing increase in the NIC thresholds will benefit some employees, it will not benefit those on higher salaries once the Health & Social Care Levy is brought into the equation.

If you have any queries about how these new NIC measures will affect you, please contact one of our Tax Specialists or visit one of our offices in Dalston, Dumfries, Penrith or Workington.