NI threshold increase ‘not likely to benefit workers’

Employees are now able to earn more money before they have to pay national insurance, as the threshold at which the tax is due has risen from £9,880 to £12,570 today (6 July 2022).

The primary threshold for employee national insurance contributions has been aligned with the personal threshold for income tax, meaning that many employees will be able to keep more of what they earn.

An estimated seven in 10 employees would be better off as a result, while two million low income workers will no longer have to pay national insurance at all, the government has said.

However, as the cost of living continues to rise, employees still face a higher tax burden than earlier this year. In April, the government increased the NICs rate by 1.25% for both employers and employees in order to help fund the growing health and social care bill. From April next year, NI will return to its previous rate and the additional 1.25% will be shown as the Health and Social Care Levy on employees’ payslips.

Middle and higher earners are not likely to see much benefit, according to analysis by the Liberal Democrats. A middle-income earner making £44,500 in 2021-22 will pay £200 more this year in NICs despite the increase in the threshold, due to April’s hike.

Lib Dem Treasury spokesperson Christine Jardine said: “Millions are scrimping and saving just to pay their bills and this latest tax hike will come as a hammer blow.

“To try to pass this off as a tax cut is beneath contempt. Hard working Brits deserve a government that is honest with them. Britain needs an emergency tax cut before it’s too late for millions of families and pensioners on the brink.”

Federation of Small Businesses policy chair Tina McKenzie said: “It’s right that the government ensures employees and sole traders can keep more of what they earn.

“That said, memories haven’t faded of the tax hikes that landed in April, which today’s changes only partially unwind. These adjustments shouldn’t be seen in isolation; we still face a higher tax burden than we did in March.

“Higher employer NICs rates still mean less money in the economy for pay rises, let alone sustainable investment, recruitment and discretionary spending.”

McKenzie said that while the increae in the employment allowance would reduce the employer NICs owed, organisations were encouraged to check what it meant for them.

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“Amid surging fuel prices, spiralling energy bills, higher debt costs, a weakened pound, supply chain disruption, labour shortages and new trade paperwork, firms are still faced with the biggest tax burden since the late 1940s,” she said.

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