National Insurance threshold rise from 6 July

On the 23 March 2022, the Chancellor announced an increased threshold at which workers begin to pay national insurance contributions. 

The threshold, known as the ‘Primary Threshold’, was increased from £9,880 per year to £12,570, to be in-line with the personal allowance.  This will mean that those on the lowest incomes will benefit, potentially taking some workers out of any national insurance contributions liabilities. A welcome measure in the current cost of living crisis.

However, the threshold increase was not to take effect from 6 April 2022, but instead applied from 6 July 2022.  We therefore find ourselves with a mid-year change in NIC liabilities, which employees will notice in their pay packets from July 2022.

For directors, who use the annualised earnings method, for the 2022/23 tax year the average annualised threshold will be £11,908.

So, how does this affect workers?

For all worker’s earning above £11,908 per annum, they will see a decrease in their national insurance contributions of around £29 per month from July 2022 (£268 for 2022/23). 

From the 6 April 2023, when the threshold will be in place for a full tax year, workers will see savings of around £358 per annum.

All is not what it seems

The increased primary threshold will be of little consolation for workers in current times though.  The equivalent NIC liability would have been around £690 per year lower for higher rate tax payers, and £190 per year lower for basic rate taxpayers, if the health and social care levy increases of 1.25% to the NIC rates had not gone ahead.

The Chancellor also announced an increase in the threshold for Class 2 NIC paid by the self-employed. Previously this was payable if profits exceeded the small profits threshold (£6,725) but from April 2022 Class 2 will become payable when profits exceed the lower profits limit (£9,880 until June 2022, then £12,570 – annualised at £11,908). The Government believe this will benefit around half a million self-employed people by up to £165 per year.

A reminder about National Living Wage / National Minimum Wage

The national living wage saw a 6.6% rise on 1 April 2022. The new rate increased by £0.59 per hour above the previous rate to £9.50 per hour. The national living wage is the statutory minimum wage payable to workers aged 23 and over. For a fulltime worker, this will equate to a pay rise of over £1,100 per annum.

The national minimum wage, payable to those under the age of 23, also saw increases. The new rates payable from 1 April 2022 are:

National Minimum WageRate from April 2022Previous Rate (April 2021)% Increase
21-22 Year Olds£9.18£6.839.8%
18-20 Year Olds£6.83£6.564.1%
16-17 Year Olds£4.81£4.624.1%
Apprentice Rate£4.81£4.3011.9%
Accommodation Offset£8.70£8.364.1%

Get in touch

If you have any questions regarding the change in NI threshold, or would like to discuss any further tax matters, please get in touch or contact your usual MHA advisor.