As you know, National insurance is a levy paid by everyone over the age of 16 and under retirement age. It’s also paid by those who are self employed and making a profit of £4189 per month earning over £50k per year and it’s used by the Government to fund services such as NHS, maternity, sick and bereavement pay and state pension.
On 7 September 2021, the Government announced plans to increase the funding of health and social care to be paid for by increasing the National Insurance contributions. This levy increase National Insurance by 1.25% and allegedly raise £12 billion a year on average over the next three years. It’s planned introduction is in April 2022.
Unlike the NHS, adult social care is not free at the point of use, instead, access is restricted to those with the highest needs and the lowest assets. It’s been argued that “complicated rules to determine eligibility for publicly funded services create a complex system that is difficult to understand”. We wouldn’t argue against this! Additionally, its highlighted that unlike most NHS services, social care is run by local authorities, who usually commission private sector companies or voluntary sector organisations to provide the services. The new rules do have some up sides though. It will see that no-one starting care will pay more than £86,000 over their lifetime, and no-one with assets of less than £20,000 will have to make any contribution from their savings or housing wealth which is up from £14,000. Anyone with assets between £20,000 and £100,000 will be eligible for some means-tested support.
But, what does the additional 1.25% on National Insurance mean for you?
Well, here’s a few examples…
- People earning £10,000 currently pay £52 per year. They’ll pay an extra £5 per year from April 2022.
- People earning £20,000 will see the increase meaning they pay an extra £130
- Those earning £30,000 per year will see an increase of £255 totalling £2707 per year
- For those with earnings of £40,000 per year, they currently pay £3652 per year, they’ll be paying an extra £380 from April 2022.
- £50,000 per year earners will have to pay an additional £505 per year taking them to £5357 per year
It’s easy to see how that £12 billion will start to add up!
There’s no “get out” for Company Directors either. Directors are classed as employees and pay National Insurance on annual income from salary and bonuses over £9,568. Their NI contributions are worked out from their annual earnings rather than from what they earn in each pay period, so they’ll pay the appropriate level of National insurance that we’ve given in the examples above.
If you’re confused or need some clarity around any of your business finances, then get in touch with your Aspire Team today.