Have you heard about the news on increase in national insurance deduction from April 2022 and worried how this would affect your net pay?
In this blog, we would like to explain how and why national insurance is deducted in the UK and the effect of these changes that have been made, and how they can affect you as an employed person living in the UK.
Why do we pay national insurance in the UK?
National insurance is a tax deduction in the UK.
This tax deduction is used to find social care and also the state pension in the UK.
So that is why it came as no surprise when the Prime minister announced that From 6 April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25%.
He stated that the extra revenue raised will be spent on the NHS and social care in the UK.
Different types of national insurance are paid by employees.
There are different classes of national insurance levied on employees working in the UK.
Some classes of national insurance are deducted from the employee’s income whilst the employer pays some of the insurance.
Employee national insurance(Class1 primary)
The class paid by the employee is referred to as primary class 1 national insurance.
This is deducted from the income earned by the employee when they earn over a certain threshold as shown below.
| Weekly income | £184 to £967 |
| Monthly income | £797 to £4,189 a month |
| Yearly income | £9500 |
Example of employee national insurance
Jen earns £700 in the month of April 2021 and £800 in the month of May 2021.
In the month of April, no national insurance deduction will be made from her £700 in the month of April.
However, in the month of May, there will be national insurance due on £3 that has gone over the threshold.
In this tax year, the national insurance rate for employees is 12%( any amount earned above this is at 2%), however, from April 2021, this increase in national insurance will cause a change in the rate to 13.25%.
Employer national insurance(Class1 secondary)
Every employer is also required to contribute to their employee’s national insurance pot.
The class of national insurance is referred to as secondary class 1national insurance.
The employers are required to pay national insurance if their employee earns over £170 per week,£737 per month,£8,840 per year.
however, from April 2021, this increase in national insurance will cause a change in the rate to 13.25%. to 15.05%.
The employer can claim employment allowance for this expense but they must qualify to claim this relief.
This allowance gives relieves employers by allowing the deduction of £3000 from their PAYE bill
The National insurance code.
National insurance paid is determined also by the national insurance code of the employee.
Most employees would have an A code, however, examples of common codes are shown below:
- B: for married and widow entitled to pay reduced contributions.
- C: These are for employees over the state pension age.
- J: These are for the employee that defers their contributions.
- H: This code is for apprentices under 25.
- M: Employees under 21 years old.
- Z: Employees under 21 who defer their NI.
- X: Employees under 16.
National insurance is paid by the employer for providing employees benefits.
When an employer provides benefits to their employees or pays for their personal expenses, they have to pay Class IA.
Examples of such benefits are cars, medical, travel, e.t.c.
Whenever an employer provides taxable benefits to their employee, they pay national insurance on the cost of the benefit.
The rate of Class 1A is 13.8 % and it can either be reported via payrolling the benefit or reporting to HMRC with the use of the P11D form.
Voluntary national insurance contribution.
Like I have explained earlier, national insurance are only deductible when you earn over a certain threshold
Therefore some individuals do not pay national insurance because they have not gone over the threshold.
Such taxpayers could make voluntary contributions also referred to as Class 3.
If eligible they will have to make an arrangement with HMRC on the frequency of the payment and amount paid.
It could be made either monthly, quarterly, yearly.
To contact HMRC to make such an arrangement you can click.
Conclusion on increase in national insurance.
To learn more about this tax deduction, you can click.
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