Is NI increase really a tax hike? It might be time to think again…

 After this week’s announcement about a national insurance rise from 2022 I thought I’d try and put it in perspective…

I started working in tax in the UK in 2000. Back then the personal allowance was £4,385, basic rate tax was 22%, and NI was 10% for employees and 12.2% for employers…

From next April we’ll have a personal allowance of at least £12,570, basic rate tax of 20%, and NI of 13.25% for employees and 15.05% for employers

On the face of it, it would seem that overall employee taxes are higher now than they were 20 years ago!

However, this is simply not true. 

Expressed as a total percentage of gross income for the UK average salary (using government figures) was 25% in 2000 and will be 21% from April 2022. So the average person in the UK will still be paying less employment tax as a percentage of income than they were 20 years ago, despite a nearly 60% increase in average earnings over the same period!

It’s a different story for employers though. When factoring in the changes to the NI primary threshold, even though employer contributions have increased from 12.2% to 15.05% over the period when expressed as a percentage of gross salary it has stayed flat at 10%!

Yes, I know I’m talking in percentages, and in cash terms, it’s very different, but in real terms (taking inflation into account) the average UK worker and their employer are still paying less in employment taxes (as a % of gross income) than they were 20 years ago!

Government confirms National Insurance increases to cover social care costs

The launch of a social care levy from 2022 will see taxpayers facing a 1.25% tax charge under government plans, while dividend tax will also rise.

From April 2022, the government will introduce a new, UK-wide 1.25% Health and Social Care Levy, ringfenced for health and social care. This will be based on National Insurance contributions (NICs) and from 2023 will be legislatively separate. 

All working adults, including those over the state pension age, will pay the levy and the rates of dividend tax will also increase by 1.25% to help fund this package.

There will also be changes to the amount of savings people can retain when facing a move into care costs and a cap on total cost liability for anyone paying for care home accommodation and care.

The new tax is set to raise £12bn a year and marks a major departure from the Conservatives' manifesto which committed to the triple lock on income tax, national insurance and VAT.

Further details can be found at https://www.gov.uk/government/news/record-36-billion-investment-to-reform-nhs-and-social-care.