The Chancellor’s big announcement in his Spring Statement was raising the income threshold at which National Insurance begins by around £2,500 to £12,570 – the same point at which income tax starts. But if you look at your payslip for this week or the end of this month you’ll find you’re paying more National Insurance Contributions (NICs) than you were in the previous pay period.
There are two reasons for that. First, the rate of NICs rose this month from 12% to 13.25%, which increases the amount employees pay. Second, the rise in the threshold itself doesn’t begin until 6 July. So for three months – 13 weeks – employees will pay more tax; and for the following nine months – 39 weeks – most will pay a bit less.
The two changes balance out over the year at earnings of £34,372 or £661 a week: if you earn more than that, you’ll pay more NICs over the whole of 2022/23 than you did last year. If you earn less than that, you’ll pay less in NICs than last tax year.
The Chancellor said the change would be “a tax cut for employees, worth over £330 a year”. But the detailed documents from the Treasury explain that that figure is the saving over the 12 months from when it starts on 6 July. It makes assumptions about inflation and what the threshold would have been in 2023/24 if it hadn’t been raised to £12,570. That gain of £330 is the best gloss that can be put on the tax saving. The actual benefit for most employees from raising the threshold to £12,570, compared with letting it rise with inflation as it normally does, is £269 in 2022/23 and £262 in 2023/24.
The rise in the threshold will not make it harder to qualify for a state pension. That needs 35 years of contributions to be paid or credited. People earning below the threshold to pay contributions will still be credited with them if they earn at least £123 a week. So those earning £123 to £241 a week will get a credit that counts equally with contributions actually paid by those earning more.
Paul Lewis presents Money Box on Radio 4. QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. Paul cannot answer you personally, but will reflect them in his column