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23 Mar 2022

Spring Statement: National Insurance threshold to increase by £3,000

Many workers will be £330 better off from July despite an increase in National Insurance rates
A payslip

The Chancellor has announced that, from July, workers will be able to keep more of their income before they start paying National Insurance.

In the run-up to today's Spring Statement, Rishi Sunak had faced calls to scrap the upcoming rise in National Insurance contributions (NICs), due to the cost of living crisis.

Although this rise was confirmed, he did announce an increase in the National Insurance threshold from July, which means you will be able to keep more of your money before you start paying NICs.

Here, Which? explains how the changes will affect the amount of National Insurance you'll pay in the 2022-23 tax year.

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How National Insurance is changing

Rishi Sunak announced that the threshold at which you start paying National Insurance will change from July.

The lower earnings limit will rise by £3,000, bringing it in line with the income tax threshold. This means you will not pay NICs unless you earn more than £12,570 - up from £9,568 in 2021-22.

In September the Prime Minister, Boris Johnson, announced that National Insurance rates would be increased by 1.25 percentage points from April 2022 as part of the government's plan to fund the NHS and social care.

While this rise will be going ahead, the government says 70% of people who pay National Insurance will pay less than last year - around £330 on average - as a result of the higher threshold announced today.

For employees paying Class 1 contributions, this is how NI will be charged:

2021-22 rates2022-23 rates 6 April - 5 July2022-23 rates 6 July onwards
EarningsClass 1 rateEarningsClass 1 rateEarningsClass 1 rate
Less than £9,5680%Less than £9,8800%Less than £12,5700%
More than £50,2702%More than £50,2703.25%More than £50,2703.25%

Self-employed National Insurance rates

If you're self-employed, you pay Class 2 and Class 4 NICs, depending on your profits.

Class 2 weekly contributions will increase by September 2021 CPI inflation from April. This means you will pay £3.15 a week in 2022-23.

Class 4 rates will increase by 1.25 percentage points.

The lower earnings limit thresholds were already set to increase to 3.1%, but they will now increase to £12,570.

From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits.

With the threshold changes, it now means you can earn more before you pay Class 2 and Class 4 rates.

2021-22 rates2022-23 rates April - 5 July2022-23 rates 6 July onwards
ProfitsClass 2 and 4 ratesProfitsClass 2 and 4 ratesProfitsClass 2 and 4 rates
Less than £6,5150%Less than £6,7250%Less than £6,7250%
£6,515-£9,568£3.05 per week (Class 2)£6,725-£9,8800%£6,725-£12,570£0%
£9,568-£50,2709% + £3.05 per week£9,880-£50,27010.25% + £3.15 per week£12,570-£50,27010.25% + £3.15 per week
More than £50,2702% + £3.05 per weekMore than £50,2703.25% + £315 per weekMore than £50,2703.25% + £3.15 per week

Class 3 contributions

Class 3 contributions are usually paid voluntarily by those with gaps in their National Insurance contributions (NICs).

These gaps could affect your entitlement to some benefits, including the state pension.

Class 3 contributions will increase in line with September 2021 inflation from 6 April 2022:

Class 3 contributions: £15.40 per weekClass 3 contributions: £15.85 per week

Will you be better off?

The increase in National Insurance means that someone who is employed and earns £30,000 a year will pay £53 less over the course of the 2022-23 tax year compared to 2021-22 (£2,398 vs £2,452).

However, those earning more than £34,261 will pay more National Insurance than they did last year. If you earn £50,000, you'll pay an extra £197.

We estimate a self-employed worker with profits of £20,000 will pay £994 through a mix of Class 2 and Class 4 contributions in 2022-23 - a saving of £103 compared to 2021-22.

Currently, employees above state pension age do not pay National Insurance. Self-employed workers above state pension age do not pay Class 2 contributions but must pay Class 4 contributions for the tax year they reach state pension age; they do not have to pay beyond that.

However, this will change from April 2023, when the government plans to separate the 1.25 percentage point increase to National Insurance into a new health and social care levy, which will apply to those in work who are above state pension age.

Use our calculator below to see how much National Insurance you'll pay next year; you can also select other tax years from the dropdown menu.

What is National Insurance?

National Insurance is a tax on earnings and self-employed profits.

Your National Insurance contributions are paid into a fund, from which some state benefits are paid.

This includes the state pension, statutory sick pay or maternity leave, or entitlement toadditional unemployment benefits.

Income tax to be cut from 2024

In addition to the new National Insurance threshold, Rishi Sunak has announced plans to cut the basic rate of income tax from 20% to 19% by the end of Parliament in 2024.

He said this cut - the first in 16 years - would be worth an average of £175 for more than 30 million workers.

The government has also said it wants to make the tax system 'simpler, fairer and more efficient', and will confirm plans for reforms to reliefs and allowances ahead of 2024.

This story has been updated since it was first published to make clear self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs from April 2022. The calculations for an employed worker earning £30,000 and a self-employed person with £20,000 profits are now more specific for the total tax bill payable based on the April to July and July onwards threshold shifts.