If you are working and under the age of 66, you will probably pay less tax from this week. The point at which National Insurance contributions (NICs) begin is being raised from £190 a week to £242. (In annual terms, £9,880 a year to £12,570.) If you earn less – which is around 25 hours a week on the National Living Wage – you will no longer pay any NICs. If you earn more than that your contributions will be cut by £6.89 a week from 6 July.
This higher threshold will not affect your entitlement to state pension and other benefits, because if you earn between £6,396 and £12,570, you will be given a full National Insurance credit instead. This rise in the threshold will partly offset the 6 April increase in the rate charged from 12% to 13.25%. Over the whole tax year 2022/23, people with pay below £34,372 will pay less National Insurance than last year despite
that increase. Above that income, you will pay more than in 2021/22.
Self-employed people will also benefit. They pay NICs with their self-assessment. For them the annual threshold has been raised for 2022/23 to £11,908. This “blended allowance” represents three months at the old annual threshold of £9,880 and nine at the new one of £12,570. This
new threshold applies both to Class 4 contributions, which are 10.25% of profits, and the flat-rate Class 2 contributions, which are £3.15 a week and qualify them for the state pension. From this year they do not have to pay either until their profits exceed £11,908. If their profit is lower but is £6,725 or above, their state pension rights will be protected for that year.
Next April the increased rate for NICs will go back to 12% for employees and 9% for the self-employed. The extra 1.25% will become a separate, third tax on earned income called the Health and Social Care Levy. People over pension age who work or are self-employed do not pay NICs, but will pay the Health and Social Care Levy on all their pay above £242 a week or £12,570 a year – a new tax on pensioners’ earnings.
Paul Lewis presents Money Box on Radio 4. To read more of his advice, see radiotimesmoney.com QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com.