Prime Minister announces a UK wide increase in National Insurance

Today (7 September 2021) the Prime Minister announced that, from April 2022, a new health and social care tax will be introduced across the UK to fund reforms to the care sector and NHS funding in England.

The tax will begin as a 1.25% increase in National Insurance – paid by employees, the self-employed and by employers. It will also apply to income from share dividends. The tax will not apply to NICs paid by the lowest paid self-employed workers and anyone making voluntary contributions. Further detail, including exceptions, is available here.

From 2023, this will then become a separate tax on earned income, and will also apply to individuals working above State Pension age, at which point National Insurance rates will return to their 2021/22 levels.

While the Government’s focus is on funding health and social care reforms in England, there will be an additional £2.2 billion for Scotland, Wales and Northern Ireland to spend on services, with £400 million allocated for Northern Ireland.

What is National Insurance?

If you work, either as an employee or self-employed, National Insurance is paid from age 16 until you reach State Pension age, and provided you are either:

• An employee earning over £184 per week
• Self-employed and making a profit of £6,515 or more a year.

At present, if you are employed, National Insurance is paid at a rate of 12% if you earn between £184 and £967 a week, and 2% if you earn over £967 a week. If you are self-employed, what you pay depends on your annual profits.

Further information is available here.

How will the increase in National Insurance impact on families?

From April 2022, many families will see an increase in the amount of National Insurance that they have to pay, and a reduction in their net income. This will impact on anyone earning £9,568 or more per annum.

For a basic rate taxpayer earning £24,100, the annual increase will be approximately £180 in 2022/23.

Importantly, this could impact on those entitled to financial support, with potentially more families becoming eligible for Universal Credit, or receiving an additional Universal Credit award due to a decrease in their net income.

However, this announcement comes at a time when many families are concerned about the £20 a week cut to Universal Credit from October, and will create further anxiety for those who are already struggling to balance their income with their essential outgoings.

How will the increase in National Insurance impact on the Childcare Voucher scheme?

The Childcare Voucher scheme closed to new entrants in 2018 and remains so, however as a result of the change to National Insurance, parents who are currently in receipt of Childcare Vouchers will see an additional saving on their registered childcare costs in 2022/23.

Childcare Vouchers work through salary sacrifice. Parents can ‘sacrifice’ a portion of their pay – pre-Tax and National Insurance – as Childcare Vouchers. As a result, the parent saves on the Tax and National Insurance that they would otherwise have had to pay.

At present, a basic rate taxpayer who salary sacrifices £243 a month makes an annual saving of £933. From April 2022, this will increase to £970.

Employers will also make a greater saving on Employers’ NICs.

Contact us for advice

We would encourage any individuals or employers wishing to find out how these changes might impact on them, to contact our Family Benefits Advice Service for free, impartial and confidential advice on 028 9267 8200 or email hello@employersforchildcare.org