National Insurance – the 2022 threshold changes

In a move to help with the rising cost of living, the government has announced that the National Insurance primary threshold (the point at which employees start paying NICs) will increase from £9,880 to £12,570 from July 2022.

This aligns the NI threshold with the personal allowance for income tax, simplifying the system and providing a meaningful boost to take-home pay for lower and middle earners. For employers, while the secondary threshold remains unchanged, the increase in the Employment Allowance to £5,000 provides further support for small businesses.

The impact on employees

The increase in the primary threshold means that an employee earning £12,570 or more will save around £330 a year in National Insurance contributions. This tax cut is designed to mitigate the impact of the 1.25% Health and Social Care Levy, which was introduced in April 2022. For those earning less than around £35,000, the threshold increase will more than offset the cost of the levy, resulting in an overall reduction in their tax burden.

The impact on the self-employed

The self-employed will also benefit from an equivalent increase in the Lower Profits Limit for Class 4 National Insurance. However, because Class 4 NICs are calculated on an annual basis, the threshold for the 2022/23 tax year will be apportioned, resulting in an effective threshold of £11,908 for this year only. From 2023/24 onwards, the threshold will fully align with the personal allowance at £12,570.

The Employment Allowance

To support employers with the rising cost of employment (including the employer's element of the Health and Social Care Levy), the Employment Allowance has been increased from £4,000 to £5,000. This allowance allows eligible employers to reduce their annual employer National Insurance liability. This means a small business will be able to employ four full-time employees on the National Living Wage without paying any employer NICs.