THE Government’s measures to tackle the cost-of-living crisis reached a key milestone yesterday (Thursday), after a bill became law raising the earnings thresholds at which people have to start paying National Insurance contributions (NICs) by almost £3,000, and delivering a tax cut worth over £330 for a typical employee in the year from July.
The National Insurance Contributions (Increase of Thresholds) Act, which received Royal Assent yesterday, raises the threshold at which individuals start to pay NICs and aligns it with the income tax personal allowance at £12,570, starting from July 2022.
For the 2022-23 tax year, the self-employed will be able to earn £11,908 before paying Class 4 NICs and the Levy. The annual figure for the self-employed is £11,908, because this accounts for 13 weeks of £9,880 and 39 weeks of £12,570. That means the benefit the self-employed receive in 2022-23 is in line with that received by employees.
As a result of the new law, around 2.2m working age people will be taken out of paying Class 1 NICs (applying to employees), and Class 4 NICs (for the self-employed) altogether. The Treasury says that from July, around 70% of workers who pay NICs will be better off, even accounting for the introduction of the Health and Social Care Levy.
At his recent Spring Statement, the Chancellor of the Exchequer, Rishi Sunak, set out a tax plan that will help families with the cost of living, support growth in the economy, and ensure the proceeds of growth are shared fairly. As well as the NICs threshold rise it included a 12-month-long 5p cut to fuel duty and a cut in the basic rate of income tax, to 19p in the pound, taking effect in 2024.
Rishi Sunak said: “I know people are worried about making ends meet, with global supply chain challenges and Russia’s invasion of Ukraine driving up the cost of living for families across the UK.
“That’s why this tax cut for almost 30 million people is so important. And it’s part of further support worth over £22 billion in 2022-23 to help with the cost of living, by helping people with their energy bills and ensuring people keep more of their money.”
Thanks to above inflation increases in the income tax personal allowance and the NICs Primary Threshold since 2010-11, a typical basic rate taxpayer earning £24,000 in 2022-23 will pay £1,140 less in income tax and NICs than they otherwise would have done, even after accounting for the Health and Social Care Levy.
That comprises £760 less income tax and around £380 less NICs in 2022-23 compared to what they otherwise would have paid.
The July threshold rise is a tax cut for a typical employee worth over £330 in the year from July 2022; the equivalent saving for a typical self-employed person, who pay lower NICs rates, would be worth over £250.
A spokesperson for the Treasury said: “The Government has taken action worth over £22 billion next financial year to help with the cost of living including the fuel duty cut, increases to the NICs thresholds and an extra £500 million for the Household Support Fund to help those most in need.
“We’re also helping low-income families keep more of what they earn by reducing the Universal Credit taper rate, boosting incomes by £1,000 per average full time worker by increasing the National Living Wage and providing over £9 billion to help with rising energy bills.”