National Insurance Contributions (NICs) are increasing in April 2022 for both PAYE workers and employers by 1.25%. Here are 4 things you need to know!

1. Who pays NICs and what are the current rates?

NICs are a tax paid by employees and the self-employed on their earnings, and by employers on the earnings of those they employ. NICs are not charged on those with low earnings, or on pension income or investment incomes (such as dividends or capital gains). Employee and self-employed NICs are not levied on the earnings of those over the state pension age.

2. How are rates due to change in April?

From April 2022, the rates of NICs are due to increase by 1.25% for individual PAYE workers. This means, for example, that the main rate for employees is due to rise from 12% to 13.25%.

In addition from April 2022, the rates of NICs are due to increase by 1.25% for employers meaning that the main rate is due to rise from 13.8% to 15.05%.

3. How much more will people pay in tax?

Relative to 2021-22 NICs bills, two things will change in April. First, the threshold at which NICs starts to be paid will increase – this will reduce NICs bills. (Thresholds tend to increase each April to account for inflation). Second, the rates of NICs will increase.

The self-employed pay less in NICs than employees, but will face the same annual increase (because both employee and self-employed NICs rates are due to rise by 1.25 percentage points).

4. How much revenue does the government expect to raise?

Increases in NICs rates from April 2022 are forecast to raise around £14 billion per year. This is reduced to just under £13 billion to spend on health and social care after compensating public sector employers for the additional employers NICs that they will have to pay.

IFS researchers estimate that around 40% of the forecast revenue (i.e. £5.6 billion) would come from Employer NICs (increasing from 13.8% to 15.05%).

Increasing the rates of dividend tax is forecast to raise under £1 billion by 2026-27.

For further information please see: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2022-to-2023

Information taken from https://ifs.org.uk/publications/15929