National insurance bills, which were pushed up by higher rates in April, went down on 6 July as the threshold increased.
The impact of this on your finances will depend on how much you earn. Those on lower incomes will make some welcome savings from July 2022, while higher earners will pay more compared to 2021/2022.
What is national insurance?
National insurance is a tax paid on earnings by employees and employers and paid by the self-employed on profits. It was introduced back in 1911 to support workers who had lost their jobs or needed medical treatment, and later expanded to fund the state pension and other benefits and contribute towards the NHS.
The government can also borrow from the national insurance fund to pay for other projects.
National insurance contributions are mandatory for people aged 16 or over, up until state retirement age, provided you earn over certain limits.
There are four main types of national insurance:
New national insurance rates
At the start of the new tax year on 6 April, workers started paying more national insurance.
The rate at which you pay national insurance has increased by 1.25%. This means that from 6 April workers saw their national insurance contributions rise from 12% to 13.25%.
Earnings above £4,189 a month (£50,270 per year) are usually subject to national insurance deductions of 2%. But from 6 April this increased to 3.25%.
National insurance threshold rising from July
From 6 July the national insurance threshold, which is the level of earnings at which you start making contributions, became the same as the income tax threshold (known as the personal allowance). It means you no longer pay national insurance or income tax if you earn below £12,570 a year. That’s an increase from the previous NI threshold of £9,880 which came into force in April 2022, (the threshold in the 2021/22 tax year was £9,588)
Increasing the threshold means fewer workers will get caught in the national insurance net, meaning they will have more money in their pockets.
If you earn more than the threshold, you will still feel the benefit as you will pay less national insurance overall.