What July’s National Insurance threshold change means a £330 annual pay rise for almost all workers

From July 6, the threshold at which NI kicks in increases from £9,880 (the increase introduced on April 6, up from the previous £9,568) to £12,570, bringing it in line with the income tax threshold, giving 2.2 million workers a complete break from NI payments, though they will still receive all the benefits that come with paying the levy.

“This equates to a saving of over £330 on average, when compared to the previous three months of National Insurance contributions, with the cash boost also set to benefit a further 30 million typical employees earning over the new £12,570 threshold, including higher earners.

“However, the saving is even higher for lower- to middle-income earners when compared to the NI rates paid in the 2021-22 tax year – with those earning less than around £35,000 having their NI contributions cut by more than the amount they pay through the 1.25% levy. That’s effectively 70% of people seeing their NI drop below what they were paying last year.

“The picture is less rosy for higher earners. Yes, they still secure that nice little £330 uplift to their net pay next month but if they compare their NI contributions after July 6 to the 2021-22 tax year they will be paying more. This is because those earning more than the upper earnings limit (UEL) of £50,270 also saw National Insurance contributions on income above that threshold charged at an increased rate of 3.25% from April 6, up from 2%.

“While it’s welcome in these financially challenging times that every worker will see a fall in their NI bill next month compared to the previous three months – delivering a mini-boost to pay packets in dark economic times - the uplift won’t go far when you consider that real wages are falling amid rampant inflation as the cost-of-living crisis batters household finances.

“The good news is that eight million vulnerable households will also receive the first of Rishi Sunak’s cost-of-living cash payments of £326 on July 14, offering additional relief for those struggling the most. This will be followed by a second instalment in the Autumn, forming part of a £1,200 support package for those hardest hit by the cost-of-living crisis.

“Workers that want to see more of an uplift to their pay packet might want to consider salary sacrifice as a way to boost take home salary, particularly if they are higher earners.

“Some employers allow staff to contribute a greater proportion of their salary into their workplace pension in lieu of pay. While pension contributions already benefit from income tax relief, the system also offers NI relief which benefits both the employee and employer.

“Only consider this route if you are confident that you can pay all of your household bills adequately and won’t be affected by having less income every month, even if the money is being redirected towards your future. Also note, that a lower salary could also affect the amount you can borrow when it comes to a mortgage application.

“Looking ahead and there are more changes to come. From April 2023, the NI contribution rate will revert to the 2021-2022 level with the Health and Social Care levy becoming a separate tax paid at the same rate of 1.25%.

“While this will not change the amount of tax taken from employee salaries, there will be a rise for pensioners still working after the current state pension age of 66 if they earn more than the primary threshold of £12,570.

“While pensioners working beyond the state retirement age don’t pay national insurance, they will have the new Health and Social Care levy deducted from their wages from April 6 next year.

“One thing all this NI talk should do is to focus minds on the value of the state pension to retirement, encouraging people to make sure they secure the full entitlement by plugging any shortfall in contributions.

“To qualify for a state pension, you need 10 qualifying years on your NI record; this means you were either working and paid NI contributions, you received NI credits if you were unemployed, ill or a parent or carer, or that you have paid voluntary NI contributions.

“With the state pension age for women and men currently 66 and set to rise to 67 between 2026 and 2028, many working Britons will automatically achieve that in 10 years.  However, to hit the full state pension allowance of £185.15 per week or around £9,630 a year (for those reaching state pension age post April 2016), people need to achieve 35 qualifying years.

“This can be harder to achieve for women who took time out of work to care for children or elderly relations. It can also be a challenge for those who enjoyed a long career break or were self-employed – and therefore did not pay NI contributions – or those who spent a large portion of their career working overseas and did not make voluntary contributions.

“If you are close to the state pension age and fear you do not have enough qualifying years to receive the full amount, you can obtain a state pension forecast from the Government.

“Checking your record will clarify whether you should top-up and whether you might qualify for NI credits – such as carer’s credit for example – for some of the missed years. By ensuring your NI record is complete, you will maximise the amount you receive during your retirement.

“Remember, saving independently for retirement is also key for anyone who wants a comfortable retirement, with the option to save extra into their workplace pension and/or separately build up funds in a personal pension such as a self-invested personal pension (SIPP).  With the exception of very high earners, most people could potentially contribute up to £40,000 gross each tax year, which includes the tax reliefs available.”

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