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What does today's National Insurance threshold rise mean for your money?

Millions of workers will see reduced NI contributions

Millions of workers in the UK will see their take-home pay increase from today (6 July), as National Insurance threshold rises kick in. 

This means workers will be able to keep more of their money before they start paying National Insurance contributions (NICs), and some will pay less than they did in the previous tax year. 

Workers on low wages (£15,000 a year or less) are set to save around £330 a year in National Insurance, compared to what they paid in 2021-22, while the Treasury claims 2.2 million people will pay no NI at all.

The NIC threshold change follows the 1.25 percentage point rate rise that came into force in April. Due to the soaring cost of living, former Chancellor Rishi Sunak had faced calls to scrap the tax increase; instead, he brought forward the threshold rise that had originally been planned for the end of this Parliament. 

Here, Which? explains what changes have taken place and how you might benefit.

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How the NI threshold rise works

The National Insurance threshold changes mean the lower earnings limit has risen by nearly £3,000, to put it in line with the income tax threshold.

The lower earnings limit has increased from £9,880 to £12,570 annually (£242 weekly, or £1,048 per month).

For employed workers, this means you'll pay Class 1 contributions of 13.25% on earnings between £12,570 and £50,270, and 3.25% on anything above £50,270.

Self-employed workers pay Class 2 and Class 4 National Insurance. The change here is to the lower profits limit (LPL), which has also risen to £12,570 - up from £9,880. 

The ramifications of this are more complicated. Firstly, while the LPL has risen, the government is setting it at an annualised rate of £11,908 - this evens out the threshold changes across the whole year. 

Class 2 contributions have been scrapped for anyone earning between the small profits threshold (SPT) of £6,725 and the lower profits limit (LPL) since April - but anyone who earns between £6,725 and £11,908 will still build up National Insurance credits.

The LPL is also the threshold for Class 4 contributions, which are set at 10.25% for earnings up to £50,270, and 3.25% on earnings above this.

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How much can you expect to pay?

Those earning around £40,000 or less are the biggest winners of the NI threshold change. 

These workers will see a deduction in their overall NIC bill for 2022-23 compared to the last tax year. That's after you take into account the 1.25% health and social care levy.

Higher earners, on the other hand, will still pay more than they did last year. For example, a worker on an annual salary of £50,000 is now paying around £10 more a month compared to 2021-22. 

You can use our free National Insurance calculator to see how the changes affect your income. It makes standard assumptions about employed and self-employed people to estimate your tax breakdown. To find your total bill for 2022-23, you will need to check what you'll pay between 6 April and 5 July, then check again for 6 July to 5 April, then add the two figures together.

The threshold change taking place partway through the tax year means it's difficult to work out what you're paying. 

The table below shows how monthly NICs for employed workers could change, comparing 2021-22 with 2022-23 NICs before and after the threshold change. Note that this can vary depending on things such as pension contributions, your tax code, student loan repayments and income variations.

Annual salaryNICs per month, 2021-22NICs per month, 6 Apr-5 Jul 2022NICs per month, 6 Jul 2022-5 Apr 2023

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What is National Insurance?

National Insurance is a tax on earnings and self-employed profits, paid by workers as well as employers.

The money you pay goes into a fund, from which some state benefits are paid. This includes things such as the state pension, statutory sick pay or maternity leave, or entitlement to additional unemployment benefits.

To be entitled to the state pension, you need to pay National Insurance for a set number of years; if you don't meet the minimum amount of contributions you may not qualify for some benefits.

Your contributions are tracked throughout your working life with your National Insurance number, as each one is unique. If you're a UK national, you should receive an NI number automatically before you turn 16.