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!