How will the 1.25% National Insurance increase affect me?

how will it affect employees?

On 7th September 2021, Boris Johnson announced an increase to National Insurance contributions from April 2022. The structure of this is still being worked on at the moment, but what we do know now is that the impact of the UK wide 1.25% health and social care levy[1] will impact millions of people and all employers from that date.

Read our quick guide below to find out how you, as an employee, may be affected.

How will it impact my pay?

If your earnings are at the level at which you pay National Insurance contributions, your National Insurance contributions will increase. You will experience this in the form of reduced take home pay from April 2022 (when the change takes effect).

I am over State Pension age and therefore don’t pay National Insurance. Does this mean that I am not impacted?

You may still be impacted depending on your earnings, although not until April 2023. This is because a health and social care levy will be introduced from this date, replacing the National Insurance increase.

Is there any way that I can avoid this increased cost?

If you are able to make pension contributions by salary exchange, then the savings you make by contributing in this way (compared to contributing into a pension in any other way) will be increased.

You may wish to consider changing your contribution level, in order to maximise the savings that you experience.

For example, asking your employer to exchange £100 of your pay for an increased employer contribution of the same amount will mean that £100 less of your pay will be subject to PAYE and National Insurance. The impact on your take home pay will not be £100 though, as you will no longer see £20 basic rate tax deducted, or £13.25 National Insurance (until April 2022, this would be £20 basic rate tax and £12.00 National Insurance). This means that the impact on your take home pay from April 2022 would be £66.75, whilst your pension would have an additional £100 contributed.

For Higher rate taxpayers, the impact on your take home pay will again not be £100 – as you will no longer see £40 higher rate tax deducted, or £3.25 National Insurance (until April 2022, this would be £40 higher rate tax and £2.00 National Insurance). This means that the impact on your take home pay from April 2022 would be £56.75, whilst having contributed an additional £100 to your pension.

Is there anything else I need to know about salary exchange?

It is certainly worthwhile considering but there are a few things to take into account. Salary exchange is covered in detail in our member guide and we strongly recommend that you read this before making any decisions about changing contribution levels.

If you would like further information or advice, please do get in touch with us today.

The information provided does not constitute advice or recommendation. Any information regarding tax treatment is based on our understanding of current tax law and HM Revenue and Customs practice, all of which may be subject to change. Your personal circumstances may also impact on tax treatment. The Financial Conduct Authority does not regulate tax advice.

Brunsdon Financial is not responsible for the content of third-party web sites.

Source 1

how will it affect employees?

How will the 1.25% National Insurance increase affect me?

On 7th September 2021, Boris Johnson announced an increase to National Insurance contributions from April 2022. The structure of this is still being worked on at the moment, but what we do know now is that the impact of the UK wide 1.25% health and social care levy[1] will impact millions of people and all employers from that date.

Read our quick guide below to find out how you, as an employee, may be affected.

How will it impact my pay?

If your earnings are at the level at which you pay National Insurance contributions, your National Insurance contributions will increase. You will experience this in the form of reduced take home pay from April 2022 (when the change takes effect).

I am over State Pension age and therefore don’t pay National Insurance. Does this mean that I am not impacted?

You may still be impacted depending on your earnings, although not until April 2023. This is because a health and social care levy will be introduced from this date, replacing the National Insurance increase.

Is there any way that I can avoid this increased cost?

If you are able to make pension contributions by salary exchange, then the savings you make by contributing in this way (compared to contributing into a pension in any other way) will be increased.

You may wish to consider changing your contribution level, in order to maximise the savings that you experience.

For example, asking your employer to exchange £100 of your pay for an increased employer contribution of the same amount will mean that £100 less of your pay will be subject to PAYE and National Insurance. The impact on your take home pay will not be £100 though, as you will no longer see £20 basic rate tax deducted, or £13.25 National Insurance (until April 2022, this would be £20 basic rate tax and £12.00 National Insurance). This means that the impact on your take home pay from April 2022 would be £66.75, whilst your pension would have an additional £100 contributed.

For Higher rate taxpayers, the impact on your take home pay will again not be £100 – as you will no longer see £40 higher rate tax deducted, or £3.25 National Insurance (until April 2022, this would be £40 higher rate tax and £2.00 National Insurance). This means that the impact on your take home pay from April 2022 would be £56.75, whilst having contributed an additional £100 to your pension.

Is there anything else I need to know about salary exchange?

It is certainly worthwhile considering but there are a few things to take into account. Salary exchange is covered in detail in our member guide and we strongly recommend that you read this before making any decisions about changing contribution levels.

If you would like further information or advice, please do get in touch with us today.

The information provided does not constitute advice or recommendation. Any information regarding tax treatment is based on our understanding of current tax law and HM Revenue and Customs practice, all of which may be subject to change. Your personal circumstances may also impact on tax treatment. The Financial Conduct Authority does not regulate tax advice.

Brunsdon Financial is not responsible for the content of third-party web sites.

Source 1

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