National Insurance to surge to 13.25% – simple step will reduce amount you pay HMRC | Personal Finance | Finance
In April 2022, national insurance contributions will increase to a total of 13.25% to help cover the costs of the NHS and social services in the UK. Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown, explained how employees and low-income people can avoid these costs by increasing their work pensions.
Earlier this year, the government announced the increase in national insurance that will begin on April 6, 2022 until April 5, 2023 – when the 1.25% hike will become its own levy.
The 1.25% increase may not seem like much on paper, but for those living day to day, it could mean the difference between getting by and not being able to put food on the table.
The increase will apply to all classes of national insurance, including traditional employees and the self-employed, but will not affect anyone over the retirement age.
The current National Class 1 insurance rate, for those earning between £ 184 and £ 967 per week, is 12%.
Those earning between £ 9,564 and £ 50,268 per year will see the 1.25% hike erode their income while anyone earning above that threshold will pay a rate of 3.25% on that portion.
Married women or widowed employees with a valid “certificate of election” as well as those who postpone their national insurance due to having more than one job will pay less.
Ms Coles noted that these increases will more than likely have a “disproportionate impact” on low wages.
This is because the increase takes effect at a lower salary level than other bills such as income tax.
It is also due to the fact that base rate taxpayers already have a higher rate than those with higher wages.
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She added: “It hits younger people as well, because when you get past retirement age you don’t have to pay national insurance.
“This is the first step towards the introduction of the health and social care tax the following April, which will also extend the charge to anyone with professional income above working age.”
Young workers and professionals are worried about the effects these increases, and likely future increases, will have on their incomes, especially in light of the current cost-of-living crisis that has seen many balancing the line between survival and outright poverty.
Ms Coles explained that there is a way to help savers invest more in their pensions while reducing the effects of this tax increase.
“If you’re worried about national insurance, you can lower your tax bill and increase your pension if your employer comes up with a wage sacrifice plan.”
She explained, “These effectively reduce your salary and increase pension contributions by an equivalent amount. Because you don’t pay tax or NI on pension contributions, the full value of the pay cut goes into the plan. “
Unfortunately, she noted that this will not add more money to her pocket at this time, as they will receive less monthly income.
However, it may be worth considering for those who would rather spend their hard-earned money on retirement rather than “handing over more to the IRS.”
Ms Coles added: “2022 is a year of change, but not in a good way. Most of the ongoing financial developments will leave us in an even worse position by the end of 2022. The tax hikes announced around the budget will take effect, along with higher prices for everything from energy bills to energy bills. rail fares and pub prices.
“Sadly, for most of us, the bad outweighs the good, so we need to plan ahead and prepare for the worst 2022 can throw at us.”
It should also be noted that all is not pessimistic for employees and savers in the coming months, as some positive economic changes will also be enacted.
This includes the end of the loyalty penalty for insurance customers, lower water bills and reduced administrative burdens for relatives of deceased relatives.
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