Will the rise in National Insurance affect me?
You may have noticed your take home pay drop in recently. This is likely to be due to a change in National Insurance (NI) which came into effect on 6th April. However, the good news is that there are further changes due in July, which mean that many people will actually pay less NI from this date.
Read on to find out how the changes may impact you.
Changes from 6th April
The rates for NI have increased this tax year by 1.25% for all earnings bands. For earnings between £823 per month and £4,189 per month, the rate has increased from 12% to 13.25%, and from 2% to 3.25% for any earnings above £4,189 per month. This means, that anyone who pays NI will have been impacted by the increase.
Changes from July
Although any increase in tax which causes a drop in income is worrying, for lots of people this tax increase will be undone by a second NI related tax announcement coming into effect from July. Currently the NI threshold is £823 per month or £9,880 per annum, which means that anyone earning above this level pays NI. However, in his Spring Statement, Rishi Sunak announced that from July, the NI threshold will be the same as the income tax personal allowance of £12,570 per annum. This means you will not pay any NI on the first £1,048 of income every month
Although the changes will save each employee an average of £330 in National Insurance each year, the changes don’t affect everyone equally. An employee who earns £13,000 per annum will save £355 per annum in NI contributions from July, this compares with an employee who earns £45,000 paying an extra £45 in NI contributions per annum.
The table below shows how the change will affect someone earning £30,000 per annum:
What can I do about it?
There isn’t a great deal you can do about NI as the tax is based on your salary before pension contributions, so increasing these won’t affect the amount you pay. Although, if your employer operates a salary sacrifice scheme, this may be a way of reducing the amount of NI you pay and may potentially increase your pension contributions. However, there are disadvantages to salary sacrifice as a lower salary can reduce the value of your workplace benefits and potentially limit the amount you can borrow for a mortgage.
So to answer the question in the title, yes — you’re likely to be affected, but how much depends on what you earn. If you earn below £41,000 you’re likely to be better off and if you earn over this, you’re likely to be worse off.
If you’re concerned about your finances and would like to chat about how we might help, please get in touch on 0330 005 0028 or visit our website www.thefuturefp.com
Written by Financial Planner, Michael Duffield
