The changes to National Insurance you need to know about

In September 2021, a new Health and Social Care Levy tax was announced by the government. It’s designed to help fund social care in England and support the NHS to recover from the effects of the pandemic.

Rather than introduce a separate tax, National Insurance payments will be increasing for 2022. What do these changes mean and how do they affect you? We have summed up everything.

The Health and Social Care tax explained

Anybody who pays National Insurance will pay an extra 1.25 percentage points, or 1.25p more in the pound, towards their payments from April 2022. This is the start of the new financial year.

However, this increase will only be for one year. From April 2023, the Health and Social Care levy will be a separate payment, with National Insurance expected to return to the current rate.

The government predicts it will collect an extra £12 billion a year. The money raised in the first year will go towards easing pressure on the NHS. The next three years will then see a portion of the money go towards the social care sector, helping older people and those with high care needs.

Why is the Health and Social Care tax needed?

Many people have to sell their homes and use savings to fund high care costs. The aim of the tax is to ensure people in England pay no more than £86,000 in care costs from October 2023 (not including accommodation and food).

Anyone in England with assets worth less than £20,000 will have their care completely covered by the state. Those who have assets worth between £20,000 and £100,000 will have care costs subsidised.

Northern Ireland, Scotland and Wales all have their own care cost policies.

How much will people have to pay?

The increase is 1.25p more per pound, but what does this mean?

An employee on £20,000 will pay an extra £130 per year, on top of the £1,251 currently paid. A wage of £50,000 will mean an increase of £505 on the £4,851 already paid.

Employees will be able to see how much they have paid on their wage slips when the levy is separated from National Insurance after 2022.

Who has to pay National Insurance?

Employees, employers and the self-employed all have to make National Insurance contributions.

• Employees pay National Insurance on their wages through PAYE.
• Employers pay extra contributions for staff.
• Self-employed people pay National Insurance on their profits.

So, for all of the above, National Insurance will be increasing in April 2022. People earning under £9,564 a year (£797 a month) don't pay National Insurance so won't have to pay the new levy.

Unlike National Insurance, the Health and Social Care Levy will also be paid by state pensioners who are still working.

National Insurance is a UK-wide tax, so even though the emphasis was on funding health and social care in England, an additional £2.2bn will be given to Scotland, Wales and Northern Ireland to spend on their services.

Why is it so controversial?

Charities have said that the National Insurance rise will have a higher impact on the lower-paid. It also comes at a time when Universal Credit is being cut after the temporary increase, and energy and living costs are rising.

Anyone earning between £9,564 and £50,268 pays 12% National Insurance. However, anything earned above this is an additional rate of just 2%. As the salary rises even further, National Insurance becomes a smaller and smaller proportion of the wage packet.

The same rate will also apply to the Health and Social Care Levy. So, many have argued that the lower-paid will be paying an unproportionate amount in comparison.