A post on Facebook shows a table of salaries with how much National Insurance (NI) people would pay before and after a recent increase, with the caption: “I didn't realise this but those earning under £34k are not affected by the NI rise. Conversely those working pensioners are.”
The graph is roughly correct for National Insurance contributions for 2021/22 and post-July 2022/23. And it’s true that those earning less £34,000 will likely pay less National Insurance overall in 2022/23 than they did the year before. But working pensioners will only be affected by the increase from 2023, when they have to start paying the health and social care levy.
National Insurance has just increased
In April 2022, National Insurance increased by 1.25 percentage points. So for those who had been paying 12%, it increased to 13.25%.
But following this, from July 2022, the threshold above which people have to pay National Insurance on their earnings will increase from £9,880 to £12,570, which means many people will end up paying less than they did before the April increase.
The post says people earning under £34,000 won’t be affected by the changes. It’s true that they certainly won’t end up paying more National Insurance, but in all likelihood they’ll end up paying less than they did in 2020/21.
People earning much more than that will end up paying more in National Insurance over 2022/23 compared to the year before. (We’ve not taken inflation into account in these calculations).
The table accompanying the post shows that those earning under £39,000 will see their National Insurance payments decrease per month, which is only correct from July. It is comparing monthly National Insurance payments in 2021/22 with payments post-July 2022, rather than over the whole of 2022/23 (which includes three months of the higher rate but the lower threshold).
The post claims that working pensioners will be affected by the National Insurance rise. In fact, they will be affected by a functionally identical tax increase, but from 2023.
At the moment, employees above state pension age don’t pay National Insurance, even if they are working (unless they are self-employed, in which case they pay Class 4 contributions until the end of the tax year in which they reached State Pension age). This will continue to be the case in 2022/23.
From 2023/24 the increase in National Insurance will be replaced with a new health and social care levy.
The health and social care levy and the National Insurance increase are technically different things, although they act in much the same way.
From April 2023, those who are above state pension age and still working will be liable to pay the health and social care levy, as long as they are earning above the primary threshold.
According to the think tank the Institute for Government: “The [health and social care] levy will be a 1.25% tax on earnings for employees, the self-employed and employers. It will tax earnings in the same way as National Insurance contributions (NICs), except that it will also apply to the earnings of those over state pension age.
“It will come into force in the tax year starting in April 2023.
“Before the levy is introduced all three rates of NICs will increase by 1.25 percentage points, in April 2022. This has the same effect as the levy, except that it will not apply to earnings over state pension age. NICs rates will then return to their current levels in April 2023”.
Picture courtesy of Annie Gray via Unsplash.